Afternoon analysis 16.08.2016

Mixed data from the United States overlapped the statements from William Dudley of the Federal Reserve, as well as closeness to round levels on the USD/JPY. The zloty remains steady against the foreign currencies. However, the GBP/PLN has yet again increased its minimum.

Since 14.30 (2.30 PM), we've been receiving a series of mixed data from the United States. Moreover, a few minutes after publishing the real estate market readings as well as inflation, we received the statement from William Dudley for Fox Business. He said that there is a possibility of rate hikes in September. Moreover, we received quite positive industrial production data at 15.15 (3.15 PM).

To put all of these information in order, we should start with the macro data. The real estate market data was positive, although not remarkable. This is because initiated investments in the real estate market in month on month relation clearly increased, but building permits were at a lower m/m level.

Inflation was lower than expected. It was at the 2.2% y/y level (excluding fuel), against the 2.3% expectations. This was the main reason for a wear-off of the American dollar and the EUR/USD going above 1.1320. Closeness to the 100 level on the USD/JPY caused the further depreciation of the American currency as well.

While the market was still interpreting all of the data, information agencies published an interview with William Dudley. He is considered as the third most important person in the Fed and his views are similar to Janet Yellen's views.

Dudley said that it's possible that we will see rate hikes in September. However, it is likely that the headline information is slightly overestimating the chances for the monetary tightening in the United States next month.

Theoretically, in the beginning of August the Fed representative claimed during his testimony in Indonesia that it's too soon to rule out the monetary tightening this year. However, Dudley also claimed that the market's expectations regarding a flat interest rates path are, “generally correct.” The entire testimony was more dovish, rather than hawkish.

The industrial production report was the least controversial, as well as the most positive for the dollar. It increased by 0.7% m/m, against the 0.3% m/m expectations. Looking at the particular components, we can see another month of a strong increase in production of consumption and investment goods, as well as a growth of the construction sector.

In conclusion, for the time being we should assume that the power of Dudley's comments has been overestimated by the market (there's no original video footage yet). Inflation was slightly negative for the dollar, but the industrial production and the real estate market were positive. Thus, the general impact should be neutral, if we assume that Dudley does not change his mind in the forthcoming two weeks. We continue to estimate the probability of the FOMC raising rates as small. The chances for a clearly stronger dollar within the forthcoming days are limited as well.

The situation on the zloty remains relatively stable. Base case inflation from Poland was slightly lower than expected and the GBP/PLN slightly increased its three-year minimum by going below the 4.90 level. However, stabilization should remain the base case scenario for the EUR/PLN. It should not deflect from the 4.26-4.27 range within the forthcoming hours.