Daily analysis 08.08.2017

The message from the Federal Reserve's members has not affected the dollar. Data from China has slightly increased the volatility on the main currency pair. The zloty has reminded stable in relation to the euro or the franc. The EUR/PLN pair has been close to 4.25 boundary.

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

• No macro data that could significantly influence the analysed currency pairs.

No surprises from FOMC

Yesterday, we pointed out that scheduled on Monday's evening speech of FOMC's members would rather not make significant changes on the currencies. Mainly, it was due to the fact that both, James Bullard and Neel Kashkari, have been perceived as dovish representatives of Fed and their views on the monetary policy have been widely known. However, Bullard's speech has included few elements that need our further attention.

Firstly, the chairman (of St. Luis regional department of the Fed) has pointed out that the different annual inflation measures have clearly decreased since December 2016 (from 23 bps to 50 bps). Additionally, the rising trend that has been noticed in Trimmed-mean PCE inflation rate for the past two years (January 2015-January 2017) has been broken and now, it has been at pre-year levels (1.68% YOY).

Bullard, while reasoning on the lack of monetary policy tightening has compared various IMF projections for 2017. Since October last year, US forecasts have been revised down by 0.1 percentage point (2.1%) in July. On the other hand, the expectations for the eurozone, Japan or China have been raised by 0.4 percentage point, 0.7 percentage point, and 0.5 percentage points respectively. This may suggest, that the condition of the United States against a background of the world has been relatively worse now than it was three-quarters ago.

Bullard also quoted research pointing out that, contrary to theory, even a further sharp drop in unemployment will not result in a significant increase in inflation. If the percentage of job seekers in relation to participation falls from the current 4.3% to 3.5%, the core PCE inflation will only grow by 0.2 percentage point up to 1.7%. Even with unemployment drop to 3.0% in the US, so to the level not seen for over 60 years, the PCE core inflation rate will be 1.8% YOY

Aforementioned elements must be considered as arguments that support keeping the interest rates unchanged. More hawkish may be the fact that, Bullard has been in favour of the beginning to reduce the Fed's balance sheet in September. The market has been already prepared for this element and probably the decision has been made some time ago.

Kashkari's appearance has taken the form of question and answers from the audience. Relatively few elements have concerned the current monetary policy. Fed representative from Minneapolis has pointed out the need for the inflation to reach a 2% target (FOMC credibility) and balance reduction (orderly). The remaining issues concerned longer-term effects on the economy (immigration, education, etc.).

In the current market situation, investors can even wait till Friday for more serious currency movements. The macroeconomic calendar for the next few days has been limited and at the end of the week inflation data from the US will come. It should show whether price rises is starting to rebound from monthly lows or whether inflationary pressures will remain very limited.

Readings from Chinese international trade

During the Asian session, the EUR/USD pair approach under 1.1825 could be seen. Probably, it has been caused by the increase in the value of the Chinese currency, although the move itself has begun before the release of Beijing's macroeconomic data. The Middle Kingdom's excess in trade has risen to $ 46.7 billion in July with a consensus of $ 45 billion and in June's publication of $ 42.8 billion.

The general data from China is quite volatile, therefore, this difference should not be a surprise to the market, but with relatively low liquidity, the weakening dollar's movement in relation to the yuan has translated into a USD loss to the euro and the increases in the main currency pair. After an hour the situation has returned to the previous quotes.

The market stabilised

For the last few hours, the trade on the zloty has been calm. The EUR/PLN pair has moved close to 4.25 boundary. The situation has been similar in other pairs. The frank, the dollar or the pound have incurred slight changes, although, there has been slight downward pressure on sterling in the global market. The EUR/GBP has reached its highest level since October 2016.

Probably, through the rest of the trading day the quotes will not significantly differ from the current levels. Both Polish and foreign macro calendar have been practically empty and the zloty, like other currencies, may wait for Friday's inflation readings from the US.