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Daily analysis 08.05.2017

8 May 2017 12:21|Marcin Lipka

The market is looking for a new foothold after the French presidential election. Statements from the Fed members have sustained the perspective for further monetary tightening. The zloty strengthened slightly at the beginning of the European session, but eventually the EUR/PLN has returned near the 4.20 level.

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

  • No macro data that could significantly impact the analyzed currency pairs.

After French elections

The market’s reaction to Emmanuel Macron’s victory in the French presidential election was relatively calm. This is because investors have been expecting such a result. In addition, the first round of the French elections caused an intense reaction, which had strengthened the euro and had wore-off the franc. Therefore, investors will have to find another foothold for the future market behaviors.

It seems unlikely that elections to the French parliament (on the 11th and 18th of June) would be such a foothold. This is because it’s difficult to estimate the support for Macron’s party, En Marche. According to the OpinionWay survey, which was conducted between April 23rd and May 2nd, En Marche can count for 249-286 of 577 places in the parliament. This is not enough to win the majority within the National Assembly, but yesterday’s result of the presidential election may appear favorable for En Marche.

However, the French parliamentary election is less hazardous for the eurozone, because surveys indicate that the centrist parties would gain the most support. Therefore, the market will most likely focus on the United States.

100% chances for hikes in June?

Friday’s data from the USA was mixed. The amount on new workplaces was consistent with estimates. The dollar might have been supported by a decrease in the unemployment rate. Nevertheless, the labor force participation rate was lower, which means that a portion of the working-age population has become professionally passive. Moreover, an increase in salaries was disappointing (2.5% vs 2.7%) decreased the appetite for the dollar.

After these readings, we received new statements from the Federal Reserve members, which suggest that the Fed has no intention to abandon their current path of the monetary tightening. Moreover, some of the centrist FOMC members have begun suggesting acceleration of rate hikes.

According to John Williams, the economy might have already exceeded its potential. This means that the current unemployment rate level (4.4%) will be difficult to maintain in the long-term. This is because it’s too low compared to the economy’s potential. If the monetary policy continues its stimulative effect, the business cycle will overheat. This would increase economic dangers.

Such elements will increase chances for the Fed sticking to its scenario of rate hikes and stop the dollar’s depreciation. According to Bloomberg, the interest rates futures indicate a 100% likelihood of rate hikes in June (of 25 base case points), as well as approximately 50% likelihood of rate hikes in September. The profitability of the US two-year treasury bonds are above 1.3%. The result of the French presidential election may be favorable for the Federal Reserve. This is because France was one of the potential global dangers for the American economy that the FOMC had had to take into consideration.

Stabilization remains base case scenario

The result of the French presidential election is estimated to be favorable for the zloty. This is because this result decreases risks within the region, as well as increases the chances that the eurozone’s growth will be consistent with its potential. The better the eurozone’s condition, the more likely that Poland’s business cycle would remain positive.

However, yesterday’s political events were expected by investors, so they will most likely contribute to keeping the EUR/PLN at its current level, rather than generate its depreciation. The zloty will most likely be safe from the effect of the American rate hikes. The Polish currency would wear-off only if the monetary tightening in the USA is faster than previously announced.

8 May 2017 12:21|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:

5 May 2017 15:02

Afternoon analysis 05.05.2017

5 May 2017 12:28

Daily analysis 05.05.2017

4 May 2017 15:22

Afternoon analysis 04.05.2017

4 May 2017 12:15

Daily analysis 04.05.2017

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