Daily analysis 09.02.2017

09.02.2017 13:16|Marcin Lipka

The lack of pressure on an increase in profitability of the American treasury bonds is negative for the dollar. Less discussion regarding Brexit may be positive for the pound. The zloty is stable, even though the MPC announcement was relatively dovish.

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

  • 14.30: Weekly jobless claims from the USA (estimates: 24k).

No support for the dollar

Increased anxieties over elections in the key euro zone countries, as well as the discussion regarding the Brexit results for the United Kingdom, should theoretically support the American currency. However, in order to revive the upward trend on the dollar, an increase in inflation expectations is required. This may be expressed in higher profitability of treasury bonds, for example. However, this index has been decreasing.

The profitability of the American two-year treasury bonds, they went slightly below 1.15%. This is approximately 15 base case points below its level from the break of 2016 and 2017, as well as 8 base case points less than before the Labor Department data last Friday.

The difference between the American and German two-year treasury bonds is in depreciation trend as well. Currently, this index is at the level of 1.92 points, which is 15 base case points less than it was at the end of 2016. Therefore, wallet investors are not encouraged to benefit from the percentage difference on both sides of the Atlantic.

The main element that withholds inflation growth is the lack of information regarding the announced fiscal changes. Moreover, extending discussion about immigration or the foreign trade may cause the optimism from the past few weeks to disappear.

Another element that decreases inflation pressure is the average condition of oil. Yesterday, the WTI went below 52 dollars per barrel, which is near its lowest level in two months. Today, the oil prices increased. This was mainly caused by yesterday’s data regarding an increase in the American fuel supply. However, the market expected the WTI quotations to be within the range of 55-60 USD, instead of being near the area of 50.

As a result, the market has not been finding arguments in favor of the dollar’s appreciation. However, the sentiment is negative for the euro as well. On one hand, it’s because of anxieties over the euro zone’s political stability and on the other, due to the mild monetary policy from the ECB. Therefore, the EUR/USD remains in a relatively narrow range of 1.07-1.08.

Lower pressure from Brexit

Yesterday, the British House of Commons accepted the regulation project, which allows to initiate the Brexit procedure. According to Bloomberg agency, this project will be accepted by the House of Lords on March 7th. A decreased intensity in the Brexit discussion should be positive for the pound.

The market participants will be able to focus more on the British macroeconomic data, which has been relatively positive. Moreover, they will be able to analyze the announcements from the Bank of England more accurately. This may cause the pound to rapidly return above the level of 5.10.

Dovish message from the Council

Yesterday, the MPC left interest rates unchanged, as expected. Moreover, the message from the Council suggests that there will be no changes in its monetary policy in the forthcoming months, which is also consistent with the market consensus. However, it’s worth focusing on the last paragraph of the MPC announcement.

In reference to the estimated inflation growth in the forthcoming months, the Council wrote that, “potential higher prices will mainly be a result of the raw material prices in the global markets. Taking into consideration the external, as well as most likely temporary character of factors which have been increasing the prices dynamics in the environment of low internal demand pressure, the Council evaluates that there is a minor risk of exceeding inflation goal in the mid-term.”

This excerpt clearly suggests that the market shouldn’t expect rate hikes, even if inflation begins to grow in the forthcoming months. The Council also suggests that a change in its monetary policy won’t be its reaction, if increasing costs of raw materials are the only element that raises inflation. The level of 2.5% is the current inflation level. However, interest rates won’t be raised if the only effect of exceeding this level is an increase in prices of fuel and of food. These suggestions are relatively dovish and may hamper the zloty’s appreciation, as well as facilitate its wear-off in unfavorable external conditions.



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