Afternoon analysis 24.01.2017

The Turkish central bank raised borrowing rates by 75 base case points, which was consistent with expectations. The American industrial PMI index reached its highest level on eighteen months. The USD/PLN is near its long-term minimum.

Lira and dollar

The Central Bank of the Republic of Turkey (TCMB) left its one-week repo rate unchanged (8%), even though the market assumed at least a 50 base case points growth. Lending rate was remained unchanged (7.25%), but borrowing rate was raised by 75 base case points. The bank’s announcement indicated that Turkey’s economic situation is improving, due to a positive impact of the demand from the EU on the Turkish export.

TCMB seems to confirm that the lira has been weakening intensively. In the short-term, this will be negative for inflation, as well as the Turkish economy. The first reaction to the bank’s decision was negative – the dollar increased against the lira from 3.74 to 3.83. However, the USD/TRY returned to its level from before the announcement (approximately 3.76).

On January 11th, the USD/TRY reached its historical records (3.94). Even though its exchange rate decreased recently, its current level is still near the maximum. The current economic and political situation is unlikely to improve in the short-term. This limits the lira’s potential to depreciate. However, the dollar will most likely continue to strengthen, despite its temporary wear-off caused by doubts regarding Donald Trump’s policy. This is because the American president’s plans are consistent with the views of Republicans, who have the majority in the American Congress.

The dollar was relatively calm today. The EUR/USD was near 1.0750 and the USD/JPN was near 113. This caused the dollar’s index (DXY) to remain slightly above 100 points for the second consecutive day. Today, IHS Markit published the American industrial PMI (55.1 points vs 54.4 points). This index’s positive result was mainly caused by an increase in production, as well as in new orders. However, the dollar’s growth was minor. The market is most likely anticipating for Trump’s comments regarding the fiscal stimulation or the GDP growth reading for the fourth quarter, which will be published on Friday.

Zloty near its two-month minimum against dollar

The zloty’s quotations were relatively calm. The PLN/HUF went above the 71 level, which neared it to its three-month maximum. The EUR/PLN remained near the level of 4.37. Next week’s data regarding the Polish GDP growth will most likely impact the zloty’s exchange rate against the euro. However, the weaker dollar caused the USD/PLN remained near its two-month minimum (4.053).

Tomorrow’s events

At 10.00 AM, the Ifo institute will publish the German business sentiment index for January. Recently, this index has been increasing and indicated an improving condition of the German economy (111 points in December). The market consensus is at the level of 111.3 points. Such result would confirm a positive trend in the German economy. Not only would this be a positive sign for the euro zone, but also for Poland. This is because Germany is Poland’s largest trading partner.

At 10.00 AM, the Polish Central Statistical Office will publish the Polish unemployment rate data for December. This index has been in a depreciation trend since March 2013 (14.4%). In November 2016, this value decreased to 8.2%. The market consensus is currently at the level of 8.3%. However, this data will have a minor impact, because the unemployment rate has already been at its historically low level for a few months. The zloty will continue to anticipate the reading regarding the GDP growth for the fourth quarter of 2016, which will be published next Tuesday.

At 4.30 PM, the Energy Information Administration (EIA), will publish its weekly report regarding the American oil market. Investors will mainly focus on the oil supply, which is one of indicators of the future oil demand. According to the previous report, the oil supply increased by 2.35 million barrels. The market expects this week’s result to be similar (2.7 million). Over the past three weeks, the fuel supply has been increasing significantly (8.3 million, 5 million and 5.9 million, respectively). This caused an additional supply pressure on the oil prices. A significant thing will be the potential change in last week’s oil production. Higher oil prices will encourage the American producers to increase their production. However, this may smother an increase in the oil prices, despite the OPEC agreement regarding limits in production.