Today, the market will focus on the European Central Bank’s meeting. However, investors will also speculate regarding the data from the American labor market, as well as next week’s scenarios from the Federal Reserve. A dovish message from the MPC has been neutral for the zloty, for the time being. However, it may clearly appear negative in the long-term.
Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.
- 13.45: Decision regarding the euro zone’s interest rates (estimates: no changes – 0.00%; deposit rates negative 0.4%).
- 14.30: The ECB press conference.
- 14.30: Weekly jobless claims from the USA (estimates: 238k).
Crucial ECB meeting
Judging from the level of both the two-year and the five-year American treasury bonds, increasing likelihood of more rapid monetary tightening in the USA, the USD/JPY near the 115 level and the USD/CAD above 1.35, the EUR/USD is in a relatively positive condition.
This may be a result of the fact that the market expects a slightly less dovish attitude from the ECB. Perhaps some investors think that increasing inflation (2.0% and 2.2% in the euro zone and in Germany, respectively) will motivate the hawkish ECB members to a relatively neutral message.
However, it seems that such an approach is delusional. During his previous press conference, Mario Draghi had been careful not to suggest that the ECB would take into consideration the QE program fade out before the end of 2017. Today, the ECB chair may also try finding arguments that would decrease the tone of the recent inflation growth as well.
Draghi will most likely emphasize that baseline inflation has been below 1% and that the current increase in prices is related to the increasing raw material prices, which is a temporary element. The minutes from January also focused on salaries. This index increased 1.3% YoY in the third quarter. The ECB concluded this: “Overall, there were as yet no convincing signs of a more dynamic upward trend in underlying inflation.”
As a result, it seems very unlikely that the ECB would resign from its current monetary policy. Therefore, the euro may clearly lose value after the press conference and the EUR/USD would adjust to the global trend on both the dollar and the debt instruments.
Focus on the United States
The market’s attention will quickly move towards the USA after the ECB meeting. Tomorrow, we will know the data from the American labor market. Yesterday’s ADP reading regarding an increase in the amount of workplaces (approximately 300k), as well as the upward revision of January’s data, have increased the chances for a positive payrolls reading. Even though these indexes have not always been consistent in the short-term, the current sentiment (higher employment in the production sector and in small business, for example) makes us believe that the ADP estimates are more than a statistical disorder.Tomorrow will also bring the data regarding salaries. However, if positive payrolls are combined with both the increase in salaries and the decreasing unemployment rate, this would be a strong appreciation signal to the dollar. Moreover, the Federal Reserve would receive better conditions to increase the future rate hikes path (for 2018, in particular).
Surprisingly dovish message
Yesterday’s behavior of the zloty after the MPC meeting was completely inconsistent with the press conference message. The Q&A session indicated that the polish monetary authorities are most likely comfortable with a perspective of negative interest rates, even though that their previous statements suggested that this will only be temporary.
If this attitude is not corrected by the future statements from particular MPC members, this may not only cause prices to be higher than inflation, but also the American interest rates to be higher than the Polish interest rates. This may wear-off the zloty in the mid-term, as well as make it more sensitive to external factors.