Afternoon analysis 29.03.2016

John Williams remains optimistic about the US economy and the return of inflation to the target. A significant slide on crude oil. The zloty remains stable during the afternoon trading.

The FX market is waiting for today's statement from Janet Yellen. In the meantime however, there were some comments from John Williams. The Fed's member, who is close to the FOMC consensus, remains optimistic regarding the conditions of the US economy and rising inflation toward the central bank target.

San Francisco Fed's president claims that, “recent developments have been very encouraging and add to my confidence that we're on course to reach our goals.” Concerning the GDP path, Williams claims that he still expects “growth to be a bit above two percent this year and the unemployment rate to fall to roughly 4.5% by the end of the year.”

In Williams presentation, there were no comments regarding Monday's data from the US and the most recent GDPNow projections, which we noted in our daily analysis. As a result, the message may be a bit outdated in the short term. The statement also didn't spur any significant market action.

Still, the event of the day is expected to be Janet Yellen’s statement. It is hard to tell whether the Fed's chief mentions the most recent macro data or she focuses only on earlier readings. Traditionally, the more time that is spent on global threats, the more the odds are that the rates will be kept unchanged for longer.

Pressure on oil. The zloty remains stable

Since Monday's US data, which showed lower expenditures and slower core PCE inflation, the oil dropped by 4% and the WTI was worth around 38.30 USD per barrel. The Brent also dropped below the 40 level mark.

In our writings regarding oil, we have frequently noted that it is worth it to recognize whether the move slump is caused by overproduction, which does not have to be negative for the global economy, or if the WTI dives due to slower demand. The latter is much more worrisome.

The current move may be slightly muted by the expectations from the Fed regarding a more benign monetary policy. But, if the US economy slows markedly the risk for the oil can rise, which may also be negative for the zloty.

Currently, the PLN trading remains fairly stable. The Zloty also continues its appreciation towards the Hungarian currency. The PLN/HUF is approaching the 74 level, which is equal to the 5% appreciation from the beginning of the year. The pair is also traded closely to the average level that was observed in Q4 of 2015.