Did investors wrongly interpret “minutes” published yesterday? Arguments supporting an opinion that the Federal Reserve was more dovish than hawkish in March. The zloty remains close to the multi-year high against the euro, but the scenario of slide below 4.00 in the following days is not really probable.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 14.30 CET: US jobless claims (survey: 283k).
The “minutes” were not hawkish
The discussion during the Fed's March meeting was supposed to show whether the Federal Reserve is really concerned with the stronger dollar, weaker export and the overall slower GDP growth in the US. However, this time the “headline” message significantly disturbed the whole picture.
The dollar markedly gained value when it turned out that “several participants judged that the economic data and the outlook were likely to warrant beginning normalization at the June meeting. The June “appearance” is clearly quite hawkish but it is worth reading the next sentence.
“However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later the year, and a couple of participants suggested that the economic outlook likely would not call for lift-off until 2016”.
Due to the fact that “several” in Fed's language means from 4 to 6 means that the rest (around 10) does not see that the hiking in June is a sound strategy. Moreover, it is also worth mentioning that the March meeting was held before the most recent dire payrolls. We can speculate that if Fed's members had known about the NFP reading below 150k and the fact that previous two months data were revised downwards by 70k they would have not called the job market “strong” and similarly to the overall economy would have called “somewhat moderated”.
Additionally, the dollar brings much more attention according to the recent minutes. In January the impact of the stronger “greenback” was unclear. Now the Fed clearly notes that it would have negative impact for the export, GDP and puts on risk inflation rebound.
As a result, in line with low energy prices and slower economy in Q1, it is hard to expect that the FOMC members decide to hike interest rates before September. The same message comes from the “minutes” which confirmed the statement and the conference despite that the market reaction was different.
The foreign market in a few sentences
Regardless, the fact that March “minutes” were quite dovish and taking into account the most recent payrolls didn't support a view to rise interest rates in June, the dollar gained value. Partly it might also be a result of still unresolved Greek case which is one of the arguments lowering the common currency. However, if Greece signs a deal until April 24th (the eurogroup meeting) and the US publishes more disappointing numbers, then the wide EUR/USD consolidation might turn into a stronger rebound. In that scenario a return to the dollar appreciation should be moved to 3rd or 4th quarter.
The EUR/PLN at almost 4-year low
Currently the base case scenario for EUR/PLN is to remain around 4.00. The condition for the zloty should be depended on the global risk appetite defined as behaviour of both European and the US equity market. A smaller impact is expected from the EUR/USD and only much more significant slide (1.06) may weaken the local currency to its European counterpart.
Regarding the Polish issues, which may affect the zloty it is worth remembering about the Wednesday's MPC meeting. If Marek Belka and his colleagues “recognize” the appreciation and the governor mentions some “speculative forces” then I we would expect some rebound on the EUR/PLN to around 4.05.
On the other hand, if the Committee fails to address the appreciation properly and dismiss non-standard zloty appreciation then it is expected the euro may even slump to the range of 3.90-3.95 as early as in April.
In the longer run there are still much more arguments for the zloty to continue the appreciation to the euro than expect its significant weakening. As a result it is estimated that in 2-3 months frame the single currency would be worth around 3.80-3.85.
Expected levels of PLN according to the EUR/USD rate
Expected GBP/PLN levels according to the GBP/PLN rate.