Afternoon analysis 23.11.2015

The currency market is calm. Interview with the Fed governor Daniel Tarullo on Bloomberg TV. Weaker than expected PMI from the US. The Polish government is scheduled to discuss the 2016 budget tomorrow.

Tarullo slightly less dovish

The afternoon is fairly calm on the global currency market and the EUR/USD is traded around 1.0650. Regarding the future US monetary policy, the most important event today was the interview of Daniel Tarullo for Bloomberg.

Himself and Leal Brainard created some turmoil when they both sent a dovish message to the markets regarding keeping the monetary policy unchanged for longer. Because there are now only 5 Fed governors who are the core of the FOMC, there were speculations regarding the diversion inside the Committee which could push the hikes towards a later date.

This time, however, Tarullo was less dovish than some might have expected. He noted that incoming job data were better than in the last few months, and the fear on EM economies eased comparing to the moment when the Fed meeting was held in September.

The governor was more dovish regarding inflation. He would like to see more concrete evidence that prices are set for a rise. From the interview it was not clear whether he would dissent in December. But it is fair to conclude that his view moved slightly towards the FOMC consensus.

Tarullo, in line with most other Fed officials, stressed the need to focus on the path of tightening rather than keeping so much attention on the initial decision. Taking into account his view he would like to see shallower rate hikes than the median rate presented in the September FOMC projections.

Weak PMI from the US

In the afternoon Markit published fairly weak PMIs from the US. The leading indicator for manufacturing dropped to a 52.6 level which is the lowest reading in 25 months. Chris Williamson, chief economist for Markit, noted that domestic demand remains positive but global weakness and strong dollar negatively affects orders in companies.

Just a bit below expectations was publication on existing home sales which on annualised basis dropped to 5.36 million while economists' consensus was around 5.4 million. It is, however, worth noting that the readings are close to the highest levels since 2007.

The zloty remains stable before government meeting

Tomorrow, besides the German Ifo reading, the zloty might be affected by the government meeting. According to the news agencies the discussion on budget is going to be held. It is likely that some hints regarding budget deficit will be revealed for 2016. If it remains below 3% of the GDP, it should slightly strengthen the zloty. On the other hand, if this level is breached, the pressure on the PLN might be maintained.