ISM reading from the USA is slightly more positive. Changes on the yen and the pound have an impact on the condition of the EUR/USD. The ECB meeting should not have a clear impact on the currency market. The zloty remains weak, but is stable at the level of 4.40 per euro.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 13.45: Decision regarding interest rates in the euro zone (estimations: reference rates 0.0%, deposit rates negative 0.4%; both without changes).
- 14.15: ADP data regarding new workplaces in non-agricultural sector (estimations: 173k).
- 14.30: Weekly jobless claims in the USA (estimations: 270k).
- 14.30: The press conference after the ECB meeting, as well as presentation of new macroeconomic forecasts for the euro zone.
At the beginning of the week, we took note that the coming days do not have to be favorable for the American currency. A brief comment from Janet Yellen was not sufficiently hawkish to determine the hikes in June or in July. Moreover, significant macroeconomic data, as well as Lael Brainard's testimony, were the elements that decreased the appetite for the USD.
Yesterday's ISM report from the USA was mixed as well. The accelerating index for the American industry increased from 50.8 points to 51.3 points, while the expectations were at the level of 50.3 points. However, the components were not as positive. The new orders decreased slightly, and the production subindex lost 1.6 points. Employment remained at its previous level (49.2 points). However, this suggests a reduction of workplaces in the industrial sector.
However, the prices component increased clearly. On one hand, this might be a positive signal for the USD that may increase the chances for raising interest rates. On the other hand, this component is strongly dependent on oil prices in the mid-term (Its value was only 35 points in February, while it is 63.5 points currently.) This may mean that this component reflects the impact of raw materials on prices. The FOMC does not want to make a decision regarding the monetary policy based on temporary signals, which include moves on raw materials. Thus, the ISM can be interpreted as neutral.
Regarding the EUR/USD, it is also worth noting a clear consolidation of the yen, as well as a wear-off of the pound. Stronger Japanese currency is probably a result of a decrease in expectations regarding the monetary stimulation by the Bank of Japan. Recently, the Prime Minister Shinzo Abe resigned from applying a sale-tax in 2017. This will mean a fiscal easing, in comparison to the previous plans. Thus, investors may expect that the Bank of Japan will be less eager to perform the monetary stimulation.
Depreciation of the USD/JPY equals a wear-off of the dollar against the yen. However, a lower evaluation of the American currency also reflects in a slightly higher value of the EUR/USD. Theoretically, a larger chance for Brexit should be positive for the dollar as well. However, it may also reduce chances for the hikes in the USA in the short-term. Therefore, it may be negative for the American currency.
However, if Brexit actually occurs, we may observe a clear consolidation of the dollar. Moreover, if the Brits decide on remaining in the European Union, it will reduce the global tensions in the mid-term, as well as allow the Federal Reserve to perform the monetary tightening. Thus, this situation should also support the USD. Therefore, the current commotion needs to be considered as temporary.
Will the ECB meeting have a minor impact?
We do not expect the ECB to modify the basic elements of the monetary policy today. On the other hand, the latest macroeconomic projections may attract some attention. Inflation will most likely be increased slightly (mainly due to an increase in oil contracts prices). It is also possible that we will see a minor increase in the GDP forecast for 2016, due to the fact that the first quarter was better than expected.
However, none of these factors should change the general mild attitude of the ECB. Moreover, Mario Draghi will most likely avoid any suggestive comments. This is especially considering the fact that the central bank is anticipating the results of the March decision regarding an increase in the monetary stimulation.
A pressure on extending or modifying quantitative easing will appear when the program will theoretically come to a conclusion (March 2017). That is, of course, if inflation is not reaching its target. However, in our opinion it will not occur sooner than the break of the third and the fourth quarter of 2016.
A few words about the foreign market
Apart from the EBC meeting, it is worth focusing on today's ADP reading regarding new workplaces in the private sector. It does not always overlap the official data of the Labor Department in the short-term. Moreover, it does not include information regarding an increase in salaries, as well as the unemployment rate. However, sometimes it gives a certain view on Friday's readings, especially if the publication is clearly inconsistent with the consensus. This data may cause more volatility than Mario Draghi's press conference.
Zloty remains weak
There are a few elements that continue to have a negative impact on the zloty's evaluation. These are the mid-term anxieties for fiscal stability, as well as expectations regarding the hikes in the USA. The risk of Brexit may have a negative impact on the zloty in the short-term as well.
Yesterday's OECD report concerning Poland also mentioned a slower than expected growth in China, as well as the perspective of conversion of franc loans as some of the dangers for the Polish economy.
On the other hand, the above elements are already included in prices to a significant degree. Thus, if the United Kingdom leaves the European Union, and the situation in Asia remains stable, the zloty should gain a slight value against the euro as well as the franc at the beginning of second part of the year, regardless of what will happen with the American interest rates.