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Daily analysis 03.08.2017

3 Aug 2017 12:22|Marcin Lipka

The dollar and the franc are correcting after reaching new lows to the euro yesterday. The BoE meeting will be key for the pound. The zloty remains stable to the euro. The PLN/HUF remains close to the 5-month lows.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 13.00: The BoE meeting results. Publication of the statement, minutes and the Inflation Report. Interest rate decision (survey: unchanged at 0.25%),
  • 13.30: Mark Carney, the BoE chief press conference,
  • 14.30: Weekly jobless claims from the US (survey: 243k),
  • 16.00: The ISM reading from the US (survey: 54.2 points).

Record high levels on the euro

During the evening part of the trading the euro hit new record high values both to the dollar and the Swiss franc around 1.1900 and 1.1500 respectively. This levels, however, failed to be maintained and the pairs corrected by few dozens pips.

In Wednesday’s analysis we noted that macroeconomic data have had relatively limited impact lately. Moreover, recent hours suggest also that the FOMC comments are ignored by investors or the members’ suggestions are not strong enough to impact the current currency trends.

First comments were made by James Bullard. In an interview with the MNI news agency he claimed that the inflation outlook deteriorated in 2017 and therefore he is not in favour to hike interest rates. Generally, however, Bullard has been far from tightening the for several months, so the effect from his suggestions should be regarded as neutral.

After 5 pm, Loretta Mester (hawkish, voting in 2018) published her presentation which was divided between economic and regulatory issues. For markets the first part was more important but besides her revision of non-accelerating inflation rate of unemployment (NAIRU) her hawkish bias was repeated. She still expects that the price increase should accelerate toward 2 percent target. Her comments look to be fairly neutral.

At the end of the US session, John Williams (slightly more hawkish then the consensus, voting in 2018) published his findings. He still suggest one hike this year and 3 in 2018 which should be regarded as quite hawkish. Additionally he confirms a view that the current inflation fall seems to be transitory. The FOMC member also supports his view citing trimmed-mean PCE inflation which is at 1.7% currently (markedly higher than the headline PCE). As a result his comments should be regarded as fairly hawkish .

The changes on the EUR/USD were, however, very little related to the FOMC comments. Increase above 1.1900 level was seen after both Bullard and Mester comments. Moreover before views presented by Williams the upside move was almost entirely corrected. Finally we may conclude that the moves on currencies were not connected to the FOMC comments and any deviation to the trend will probably require much stronger impulses.

The BoE in focus

After 13.00 CET the BoE decision on interest rates is scheduled to be announced. The hike is a low probability event but voting result will be a key to the pound reaction. The base case scenario assumes that the result will be 2 to 6 (2 out of 8 members for a hike). However, some analysts expect more hawkish bias (3 to 5). The latter scenario would push the sterling higher but it seems to be quite unlikely.

The 3-5 vote distribution would require Andrew Haldane to vote for a hike. In his recent comments he suggested a possibility to vote for a tighter policy at a previous meeting. However, since that time the inflation data showed smaller price pressure (also at the core index). In addition there is a negative real wage environment. Moreover, the rest of the data also looks mixed, which should rather favour wait-and-see mode rather than a hike. Hence, it is more likely that only two members will support the benchmark increase. Such a move should put downward pressure on the pound in the range of 0.5-1%.

The PLN remains stable

Besides new multi-month lows both on the USD/PLN and CHF/PLN the situation on the zloty remains fairly calm. The EUR/PLN is traded close to 4.25-4.26 level. Moreover the moves observed on the pound are also limited.

In early afternoon, however, some stronger volatility is possible on the sterling. After 1 pm CET the BoE statement is scheduled to be published. Probably only 2 out of 8 members decide to vote for interest rate increase. It should push the GBP lower but the slide should not exceed one percent. In case of surprise scenario with more members voting for policy tightening the pound value may increase even by 2 percent to the zloty.


3 Aug 2017 12:22|Marcin Lipka

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:

2 Aug 2017 15:01

Afternoon analysis 02.08.2017

2 Aug 2017 12:26

Daily analysis 02.08.2017

1 Aug 2017 15:13

Afternoon analysis 01.08.2017

1 Aug 2017 12:27

Daily analysis 01.08.2017

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