Daily analysis 05.04.2017

More vacant posts within the Federal Reserve after Jeffrey Lacker’s resignation. Positive data from the British economy. Significant readings from the USA. The zloty’s stabilization is being supported by the emerging market currencies. The MPC meeting should have a limited impact on the PLN.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

• 14.15: New workplaces in the American private sector for March (estimates: 185k).
• 16.00: The Monetary Policy Council press conference.
• 16.00: The British services ISM (estimates: 57 points).
• 20.00: The FOMC minutes for March.

Less FOMC members

Yesterday, Jeffrey Lacker of the Richmond Fed gave his resignation. In his statement, Lacker wrote that, “in 2012, my conduct was inconsistent with those important confidentiality policies.” Even though he was to retire in October and had no right to vote this year, his resignation has increased the uncertainty regarding the American monetary policy.

The FOMC also lost Dennis Lockhart, who retired last month. Moreover, Daniel Tarullo announced his resignation in February. We should also keep in mind that two governing posts of the American monetary authorities are vacant.

As a result, the FOMC currently has three vacant posts. Moreover, we still don’t know much about Marie Gooding (Atlanta Fed) and Mark Mullinix’s (Richmond Fed) views. These changes won’t likely impact the current monetary policy, but they may disturb the Fed’s message (scatter plot, for example).

Positive data from UK

The British PMI was clearly better than expected. This index’s reading was prepared collectively by Markit IHS and CIPS and reached the level of 55.0 points (estimates: 53.5 points).

Survey respondents also remained optimistic about the year-ahead business outlook, with almost half of the survey panel forecasting growth while only one-in-nine expect a fall in activity. The only negative element of the report was the condition of the labor market. Markit states that, “the rate of job creation was only marginal and the weakest recorded since August 2016.”

The recent data from the United Kingdom indicates a relatively positive economic condition. Moreover, inflation pressure is growing as well. This may increase the likelihood of rate hikes, which will be positive for the pound. Therefore, the British currency may receive support from a more optimistic image of the local economy, despite the discussion regarding Brexit.

American data

Today’s session in the USA will include significant readings that may cause moves in the currency market - primarily the ADP readings from the American labor market. The previous report indicated a 300k increase in new workplaces. However, this data has not been fully confirmed by payrolls. In addition, an increase in the industrial sector workplaces was the largest since 2002 (105k).

Even though the sample group used by the ADP is smaller than that of the Labor Department, such increase may be a result of a milder winter. Therefore, the ADP data may be less accurate. This may increase the risk of this reading being revised down, as well as uncertainty before Friday’s payrolls.

However, the minutes from the Federal Reserve should be relatively hawkish. They will most likely contain plenty arguments in favor of further rate hikes. The discussion regarding the moment of Fed balance reduction should be hawkish as well.

Zloty is becoming stable

A relatively stable behavior of the emerging market currencies has calmed the zloty. The EUR/PLN is near 4.25 and the dollar was pushed to 3.98 PLN. However, the past few days have shown that the PLN is one of the most fragile emerging market currencies. This means that even relatively limited changes may cause strong moves on the zloty in the near future.

Today’s MPC press conference should have a limited impact on the zloty. In March, inflation slowed down to 2.0% YOY, which was consistent with the previous message from the Council. This is also an argument in favor of the lack of changes in the current monetary policy.