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Afternoon analysis 28.01.2015

28 Jan 2015 17:19|Artur Wiszniewski

Low volatility in the markets as investors wait for Federal Reserve statement. Calm atmosphere in the broad market influenced the zloty that stood near its last close. No revolutionary solutions for frank creditors in Poland.

After two days of heightened volatility in the markets, there is a calmer atmosphere on Wednesday. Market participants are waiting for the Federal Open Market Committee decision on interest rates. The US monetary authorities are expected to assess recent developments in the global economy, where the growth is faltering.

Other important issue is a strong dollar, that impedes the return of inflation to Fed's goal of 2 percent. The US central bank is far from reaching it, as consumer price growth in December stood at 0.8 percent, less than 1.3 percent in the preceding month.

However, the market consensus is for the Fed to pursue its plan to increase interest rates in mid 2015. Although the there is no precision of the particular moment of hikes, the Fed put the term “patience” in its statement. That means that the Fed is to rise rates within “few” meetings.

The new event, that the Fed had to assess is the European Central Bank decision to introduce full quantitative easing. This factor creates better environment for growth in the euro zone. As a result, some uncertainty in the US economy surroundings will be removed, what will support its growth.

The ECB launched 1.1 trillion asset purchases program that encompasses government bonds. Some ECB officials said that the program is open ended and it will last until there is a clear improvement in the economy and the inflation growth moves near ECB goal (just below 2 percent).

The Fed statement will rather not affect major trends in the market. Recently, data from US is rather positive, what supports the case for hikes. Moreover, even if Fed presents somewhat dovish stance, the dollar will remain strong against the euro and other major pairs, as the Fed is the very first major central bank to rise rates after crisis.

Given current circumstances, the dollar is still in position to gain, as there is no clear supporting factors for other major currencies.

The zloty idle

The Polish currency was not affected by today's statement of minister of economy concerning frank denominated loans. The government was to address recent developments in the CHF/PLN after the SNB decided to drop EUR/CHF floor. However, there will be no revolution in the Polish banking system as government propositions are focused on balancing the bank-client relations. There was no Hungary-like proposition to covert frank loans into zloty denominated. As a result, the financial sector in Polish stock market soared.

The zloty was near its previous close against all major currencies. The Polish currency is expected to stay at current low levels in the near term.

28 Jan 2015 17:19|Artur Wiszniewski

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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