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Daily analysis 09.01.2017

9 Jan 2017 13:16|Marcin Lipka

The dollar after the labor market data and the comments from Fed representatives. A clear overvalue of the pound against the majority of currencies. The zloty corrects a portion of its strengthening before the MPC meeting and the decisions from the rating agencies.

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

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

Labor market and comments from Fed

Last week brought the data from the labor market, as well as the commentaries from Fed members. According to the ADP data there were 156k new work places in non-agricultural sector. This was not a surprise, especially that the final reading was revised up by 19k from the two previous months.

However, the most significant information from payrolls was a 2.9% YoY increase in salaries, which was the best result in seven years. Pressure on higher salaries is one of the basic arguments in favor of next rate hikes.

Statements from particular Fed members were also interesting. In his interview with the Financial Times, John Williams of the San Francisco Fed suggested that the American economy has no need for the short-term fiscal stimulation, for the time being. However, Williams has partially included this in his macroeconomic projections, just as approximately 50% of the FOMC members.

This element has been taken into consideration by Charles Evans as well (with a right to vote this year). During the American Economic Association, he said that three rate hikes for this year are not unlikely. Previously, Evans suggested two rate hikes for 2017, by 25 base case points each.

In his interview with Bloomberg, Robert Kaplan (with a right to vote this year, as well) said that his estimates regarding the future interest rates, are consistent with the general FOMC expectations for 2017. This also means that the Dallas Fed representative supports the 75 points monetary tightening by the end of this year.

Jeffrey Lacker’s statements during his appearance in the Maryland Bankers Association were also interesting. Even though the Richmond FOMC representative is considered hawkish, his comments regarding the risk of inflation growth reaching its level from the late 1960s (CPI was above 5% - author’s footnote) combined with the lack of the Fed’s reaction to a stronger fiscal stimulation, show that some of the FOMC members may take into consideration a more rapid monetary tightening.

Regardless of the most extreme statements, the Federal Reserve is trying to sustain the consensus of three rate hikes this year. At the same time, they want to leave themselves some space for accelerating, as well as for slowing down this cycle. Five more Fed representatives will have their testimonies by the end of this week (including Janet Yellen, on Friday). This should support the baseline scenario of the Fed from December.

Pound is under pressure

The pound has started this week with a clear overvalue. The GBP/USD went below 1.2150 after Theresa May’s interview with Sky News. Statements from the British prime minister were not significantly different from what we have been hearing over the past few months from the Brexit supporters in the Conservative Party. However, May brought up that she finds migration control more significant than access to the EU market. This caused new anxieties of increasing risk of the “hardcore Brexit”.

Statements from Nicola Sturgeon were also negative for the pound. In her interview with BBC One, chairwoman of the Scotish National Party emphasized that she’s not bluffing when it comes to the new independence referendum for Scotland. As a result, the pound went to its lowest level against the dollar in ten weeks. Moreover, the GBP/PLN was testing its lowest level in two months (5.05).

Zloty corrects its recent growths

The zloty wore-off clearly during the past few hours. The EUR/PLN returned to the area of 4.38 and the USD/PLN exceeded the level of 4.16 shortly before noon. Today, the forint is in a definitely better condition than the zloty. This suggests that pressure on the zloty is a result of local matters.

The MPC meeting is planned for Wednesday. If the council suggests that it is slightly more ready to raise interest rates sooner, the zloty may strengthen slightly. Even if the announcement is relatively hawkish, hypothetical growths on the PLN may be difficult. This is due to anxieties regarding rating’s review, which will be made by Moody’s, as well as by Fitch on January 13th.

9 Jan 2017 13:16|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:

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Afternoon analysis 05.01.2017

5 Jan 2017 13:16

Daily analysis 05.01.2017

4 Jan 2017 16:37

Afternoon analysis 04.01.2017

4 Jan 2017 13:21

Audio analysis 04.01.2017

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