Afternoon analysis 20.09.2017

Quotations of the main currencies before the Federal Reserve meeting in the evening with no significant fluctuations. After August, the state budget is still in surplus. The EUR/PLN pair remains close to the levels at midday.

The afternoon changes in the currency market are very limited. The EUR/USD pair remains close to the 1.20 boundary. Also, changes in the pound are relatively small once the fluctuations related to the publication of retail sales data on the British Isles was published. The franc, one of the global risk indicators in the world, also remains low especially in relation to the euro. The EUR/CHF pair is moving above the 1.1500 boundary.

There is a slim chance for significant changes until the Federal Reserve meeting this evening. Market participants, not only the foreign exchange ones but above all the debt instruments, will want to learn from the Fed what the attitude of the US monetary authorities towards future inflation and the level of interest rates is.

The core scenario is to leave the majority of forecasts (especially those for 2017 and 2018) unchanged. Given that part of the market assumes lowering the median of future interest rates, the implementation of the underlying solution should increase the yield on US treasury bonds and the dollar.

However, it is unlikely that this will be a surprise in the context of other issues raised during the previous months. A real change in interest rates at the current meeting is unlikely. This is due to low inflationary pressure and June's FOMC projections.

Additionally, at today's meeting, the date of starting the Fed balance sheet reduction should be announced. Many details of this operation are already known. The Fed wants to start with a monthly reduction of 6 billion USD in treasury bonds and 4 billion USD in mortgage-backed instruments (MBS). After each quarter, this figure will be increased by a further 6 billion and 4 billion to reach 30 and 20 billion on bonds and MBS respectively. The only unknown factor is when these measures will start. It is most likely to be in October. This information should not cause more movements on the market.

Stable zloty. Positive data on the budget's realisation

Time for good data from the Polish economy continues. To the strong increases in industrial production published by the Polish Central Statistical Office (GUS) yesterday joined estimates of the Ministry of Finance on the budget. In the period January-August, the national budget had a surplus of less than 5 billion PLN. Only a few weeks ago, they were afraid that after August they would already have a deficit. Of course, this is good information for the zloty, although the reaction on the PLN after the announcement was very limited.

The next hours to the Federal Reserve meeting should not bring greater movements in the national currency. However, the statement from the Fed may be a bit more hawkish than it is valued by the market, which would probably weaken the zloty despite positive reports from the country. In such a scenario, it is possible that the EUR/PLN pair could increase by approx 2 gr and in relation to the dollar by even 4-5 gr.