Afternoon analysis 22.07.2016

22.07.2016 16:00|Conotoxia.com

The pound continued to wear-off this afternoon. Moody's, as well as Fitch, may downgrade Turkey's ranking this weekend. The zloty is continuing its slow march upwards. The euro costs 4.35-4.36 PLN.

The GBP/USD went below the level of 1.3100 during the second part of today's session. Moreover, evaluation of the pound against the zloty clearly changed due to worse PMI readings. The British currency is currently within the range of 5.17-5.18 PLN, which brings it closer to its lowest levels in more than two years.

It is still difficult to say, what will the next Bank of England meeting result in. Will the institution use a one-time strong move and decrease interest rates by more than 25 base case points, as well as include some additional element of monetary easing? Or will it limit itself to just cutting interest rates and suggest by the announcement or minutes that further moves are possible, but determined by rigid data?

For the time being, the market is evaluation a 25 base case points decrease in August. However, the future interest rates may decrease to zero or below in the following months. We should not expect negative interest rates from the Bank of England. However, this may be a suggestion that the market is anticipating the QE operation.

Next week will be poor in macroeconomic data, as well as statements from the Bank of England representatives. The GDP reading from the second quarter that is planned on Wednesday, should not have any impact on the decision regarding interest rates, because it does not include the data from after Brexit. However, the data about changes in real estates prices from July, may have a bigger impact on the pound.

Rating downgrade on weekend?

This week, he main rating agencies announced a review of the Turkish rating. Standard&Poor's downgraded it on Wednesday. However, two other agencies continue to claim that Ankara's loan credibility is at the investment level, although Moody's placed Turkey at the downgrade observation list.

However, it seems that there are small chances for an improvement in Turkey's situation. Moreover, the state of emergency has been implied. This is certainly not an element that would improve the rating. Thus, it is possible that Moody's will decide to cut Turkey's rating to the speculative level this weekend.

In this case, two rating agencies would evaluate Turkey below the investment level. This could cause a faster capital outflow, increase in profitability of treasury bonds and a wear-off of the lira. However, the Turkish currency is behaving surprisingly well today and gained approximately 1% against the dollar.

Positive week for zloty

The past few days were rather successful for the zloty. It is among the top currencies of emerging and developed markets. If the global conditions remain positive, the PLN may continue its slow appreciation against the dollar, as well as the euro. A negative element for the zloty may be the Fed meeting on Wednesday. If the Federal Reserve begins suggesting rate hikes in September, we may expect significant increases, especially on the USD/PLN.

However, the sentiment towards the Polish currency should remain positive or neutral. This is of course, if the global situation does not deteriorate significantly. There should be no greater dangers for the PLN in the short-term.

 


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