Afternoon analysis 20.06.2016

Solid sentiment remains on the market. Janet Yellen is scheduled to speak before the US Senate tomorrow. The Nigerian currency slumped almost 25% after the peg was scrapped. The zloty keeps its gains recorded in the morning.

The good sentiment remains

In the morning the Brexit probability according to Oddschecker and Bloomberg was around 31%. Currently it is below 25%. What is interesting there has been no new surveys since the start of the day. It means that bookmakers mostly changed their rates due to bets inflow rather than new opinion polls.

Moreover it should be emphasised that probability around 25% is fairly small even taking into the account that the campaign slowed and voters are more keen to choose a safer solution especially if their financial interest can be under pressure. Although the latter aspect was known earlier, however, the closer to the referendum, the more it may be important for the respondents.

We still believe that event taking into the account that odds for the UK to remain within the EU structure there is still high probability that incoming survey would not be conclusive. The pressure on the pound may be quite strong in such situation especially that it is on the course to appreciate today the most since 2008 to the dollar.

Yellen’s speech

If nothing extraordinary happens regarding the British referendum, the market might return to its normal course and focus on central banks news tomorrow. The opportunity to do so might be Tuesday’s Janet Yellen speech before the US Senate

The last FOMC meeting was fairly dovish but the conference had some hakwish elements. Especially some comments regarding the UK referendum may be used as an argument for some tighter policy if the Brexit doesn’t occur. Moreover when the “payrolls” return to its normal trend next month there might be some intense discussion regarding the hike even as early as in July. That may be an argument for the stronger dollar.

The Nigerian currency lost almost ¼ of its value

Today the Nigerian currency was unpegged to the dollar. At the end of last year we emphasised that with significant crude oil drop keeping the fixed rate with the US currency may be really hard. Lack of hard currency was so dramatic that restrictions on rice import were introduced in late 2015.

In December the “Financial Times” wrote that “Nigerian government recommended to cut threes along the capital’s street to block the illegal currency exchange”. Today’s exchange regime change pushed the USD/NGN pair from 200 level to more than 260. It means that the NGN lost almost 25% of its value.

Calm trade on zloty

The zloty kept most of its gains from the morning and the EUR/PLN is quoted close to 4.40 level. Currently there are not significant signals on the horizon which may be important for the Polish currency expect the British referendum. Still its valuation should be dependent from the global view on Brexit probability.

Also regarding the dollar and the franc the zloty is not expected to be affected by any reasons but signals from the UK. Slightly more volatile can be the dollar during the Yellen’s statement but its scale is expected to be fairly limited.