Afternoon analysis 21.09.2017

Minor changes in most of the main currencies. The franc on the global market deepens its depreciation. S&P cuts China's rating but raises its perspective to a neutral one. The EUR/PLN pair close to the range of 4.28-4.29 after the publication of minutes from the Polish MPC.

The afternoon's tradings in the currency market are relatively accommodative. The EUR/USD is moving close to the 1.19 boundary. It is also calm in the case of the pound in relation to the dollar. It is clear that the market has found a short-term stability level after yesterday's Federal Reserve statement. This balance was not affected by the data on initial jobless claims in the US, which returned to around 250-260k PLN suggesting that the negative effect of hurricanes that hit southern states is quite limited for the labour market.

The information that S&P Global Ratings have cut China's creditworthiness for the first time since 1999 was accepted without any greater emotions. It fell from AA- to A+. The Agency drew attention in particular to the fact that continued strong credit growth increased economic and financial risks. However, the rating perspective has been raised from negative to neutral, which should suggest that more reductions are not expected.

Weak franc

The situation in the case of the franc is a bit different. The Swiss currency is gradually depreciating and in the early afternoon was approaching the 1.16 boundary per euro. It is worth noting that only about 3.5% is missing in order to reach the 1.20 boundary. This was the level at which the EUR/CHF pair fell dramatically after SNB's decision to release the exchange rate in mid-January 2015.

As we have been writing for a couple of months, the glow of the "safe haven" in the form of the franc has been clearly extinguishing. Above all, this is linked to a significant reduction in economic and political risks for the euro area. On the other hand, Switzerland's GDP is rising very slowly and inflation is likely to remain close to zero over the coming quarters. The risk of the franc's weakening without a significant decrease in the global sentiment is therefore still limited, and the arguments for its further depreciation should remain valid.

"Minutes" do not contribute much

The zloty, the pound or the dollar, is stabilising in the afternoon close to the levels seen at the beginning of the European session. Not much new information was received from the discussion description after the last MPC meeting. The core scenario is still to keep interest rates unchanged. In minutes, there is also a group of members (probably three) who would see a need to tighten the monetary policy earlier than the MPC's overall view.

However, in the discussion's description, there was an opinion that "in case of significant weakening in the economic activity indexes combined with a clear deterioration of the consumers and enterprises' mood may be justified to consider lowering interest rates".

Given the context of the description, it is probably the opinion of one member. Since recently only Eryk Łon has presented a similar opinion, it can be seen that he is rather isolated in this opinion. In addition, the risk of a reduction request is also likely to be decreased in recent days, as domestic economic data is better than estimates. As a result, minutes can be considered neutral.