Daily analysis 07.06.2017

Investors are waiting for the ECB meeting and election results in the UK. The MPC statement with no major impact on the PLN. Fairly pessimistic economic forecasts for Poland from the OECD. The zloty remains stable.

• 16.00: The Polish MPC press conference after June’s meeting.

Thursday’s events

Both the ECB meeting and the UK election are expected to set the tone for the broader market on Thursday. The events could also significantly increase the volatility on major currency pairs tomorrow.

Regarding the monetary policy of the euro zone, investors will pay attention to the possible modification of the MPC statement. At the end of April, the ECB wrote that "We continue to expect that these rates will remain at or below current levels for a long time by far exceeding the net purchase horizon."

It is possible that a part of "lower level" will be removed. It seems that the risk of a marked slowdown in inflation and economic growth remains very limited, so further interest rates are unlikely at the moment.

The second element of the statement that could be modified is the assessment of the economic risks. Six weeks ago, the ECB wrote that "The risks surrounding the euro area growth outlook, while moving towards a more balanced configuration, are still tilted to the downside and relate predominantly to global factors”

Taking into account that the situation in the world is stabilizing, and also the euro area is growing close to the potential, we assume that the statement on the balance of risks "are still tilted to the downside" will disappear from the June statement. The main question, however, is whether it moves the euro higher or the rest of message from the ECB keep the common currency from rising.

Just after presenting the first part of the statement the euro my be slightly boosted but there were already some rumours about upgrading the balance of risk. Moreover there was fairly clear signal in the “minutes” that the part of more cuts could be deleted. It is also possible that only one part will be modified and the latter not. It would suggest that the removing the accommodation can be slow and limited. This scenario combined with fairly dovish conference would be negative for the common currency.

Regarding the British election yesterday the Opinium presented its final poll. It was held in June 4-6th, after the events in London. It showed that the Tory lead over the Labour party remains at 7 percentage points. Similar results are shown in the several others research. However, since calling the elections Theresa May’s lead dropped from 19 percentage points.

In the late morning, there is still no new projection of seats in the House of Commons from YouGov. The model shows (data for yesterday morning) 4 percentage points lead for the Conservatives. Such a small difference does not guarantee the parliamentary majority for the Tories. If this scenario materialize it may weaken the sterling significantly.

Projections from the OECD

Trading on the zloty remains fairly stable. The EUR/PLN is slightly below 4.20 level and the Polish currency valuation to the forint also returned to the recent median around 73.50. There is also a limited risk that during the afternoon trading the situation on the PLN changes markedly even taking into the account Polish MPC press conference.

In the late morning, the Organization for Economic Coperation and Development published new macroeconomic projections for Poland. The OECD expects Polish economy to grow by 3.1% in 2018 and the deficit of the public finance sector will reach 3% of GDP. This is far more conservative than the one adopted yesterday by the government (3.8% GDP; deficit - 2.5%). In general, however, it is far too early for the currency market to value the discrepancies between individual research centres. In addition, the domestic issues at this point have very limited impact on the PLN valuation.