Afternoon analysis 17.08.2016

Minutes may be relatively hawkish, considering changes in the previous FOMC announcement. The zloty is behaving worse than the other emerging market currencies. However, the risk of a larger sale is limited for the time being.

Minutes is a name for records of the Federal Reserve meetings. The latest one from the meeting that was held three weeks ago may be relatively hawkish and extend appreciation of the dollar. After 20.00 (8 PM) investors will most likely find relatively many elements that may be interpreted positively regarding the future monetary policy. However, there is a question – will there be a clear suggestion of a monetary tightening in September?

In July, the Fed focused on a stronger labor market. This is most likely to be mentioned as a positive element in minutes. There's also a large chance that the FOMC will take note of an improvement in the global conditions, especially considering that Brexit did not cause larger worldwide market disturbances.

We should not expect any larger changes regarding inflation as well. Even though a lower growth pace of future prices caused by the market instruments may be a subject of discussion. Investments are most likely to be estimated negatively, just as they were last month.

It is also worth noting that Esther George voted for rate hikes at the end of July. This may mean that there was a wider discussion regarding this topic. It seems that this should be a crucial element of today's minutes. Will the arguments from the supporters of rate hikes in September strong enough? Has the majority of the FOMC representatives focused on the forthcoming moment of monetary tightening?

Perhaps this discussion took place. However, we don't expect that it suggested rate hikes in September. In our opinion, the FOMC will try to introduce hikes in a very mild way and minutes are not perfect to do so, especially considering that it has a three week delay. This goal should be achieved by official statements from the Federal Reserve members, combined with publishing specific documents.

Moreover, even if the minutes are interpreted as relatively dovish (which is possible after interpretation of Dudley's statement form yesterday), we should keep in mind that before the previous meeting the Federal Reserve did not have the GDP data from the second quarter, as well as a revision of readings from the previous periods.

In conclusion, minutes may cause a further, although a minor strengthening of the dollar. A stronger appreciation of the American currency would be possible, but only in the scenario of a clear suggestion of a monetary tightening in September. However, we think it is very unlikely.

Pound and zloty

Today, the pound gained value due to better than expected data from the British labor market. The GBP/USD returned above 1.30. However, tomorrow's retail sale data from July may be crucial for the British currency. If it remains in the area of 4.0% y/y, we may expect that anxieties over the British economy expressed in surveys were exaggerated. There will be a large chance for further growth of the pound and the return of the GBP/PLN above the 5.00 level.

When it comes to the zloty market, a wear-off of the Polish currency resulting from a deterioration of the global sentiment is slightly larger than in the case of the forint. If the hawkish minutes cause a further appreciation of the USD, as well as an increase in profitability of the American debt, the USD/PLN may move towards the range of 3.83-3.84. The EUR/PLN may slightly cross the 4.30 level. However, we still claim that a deterioration of the global sentiment is temporary and the dollar should wear-off before it will most likely begin to strengthen in the fourth quarter.