Daily analysis 09.07.2014

Does the ECB seem to be less concerned with strong Euro? Kocherakota still dovish, but Lacker looks less hawkish than expected. Fed's “minutes” in focus today. “The Wall Street Journal” interview with MPC member Bratkowski. The zloty is taking advantage from sentiment improvement on the EM currencies.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

• 20.00 CET: The FOMC minutes form the last Fed's minutes.

ECB. FOMC participants. Minutes

We had some minor gains on the most heavily traded pair, but they were rather caused by some moves on the USD/JPY than more appetite from the Euro. Since the morning, the EUR/USD has been quoted slightly above 1.3600 level due to relatively less hawkish comments from the FOMC members and some remarks from the ECB member. All moves are, however, of slight volatility and no major changes are expected until the minutes hit the wires.

Today we are beginning from interesting comments made by Belgian ECB member which pushed the EUR/USD marginally above 1.3620. Luc Coene (dovish) in an interview with the Le Soir newspaper claims that (according to Reuters) “It is wrong to say the Euro is very strong. Just before the financial crisis we have to remember, the Euro pointed toward $1.60. The ECB official also suggested not to focus too much on the currency value saying that “We'll do what we will have to do in terms of monetary politics but we should not go further”. Such comments seem to be unusual from a dovish camp member especially that at the recent press conference Draghi said he is very concerned with the exchange rate and although it is not the policy target it is important to the price stability.

FOMC members speeches announced earlier this week didn't seem to be any more hawkish. Kocherlakota remaind ultra-dovish, suggesting that there is higher probability that the interest rates will remain below than above the 2% Fed's target until 2018. Moreover, concerning the US jobs' market it improves too slow and he sees a full employment around 5% (almost half percentage point lower than the Committee consensus). In result he does not see any reasons to hike the benchmark.

On the other hand, Lacker (hawk) sounded a bit more dovish than usually. Despite that the Richmond Fed President pointed out the fact that there isn't much more spare labor capacity than during previous economic rebound and the inflation will be gradually rising, he revised his longer term growth perspective downwards, sees weaker housing market and consumer spending. It can mean that even the hawkish camp is not sure whether Q1 can be a good moment to start the benchmark tightening.

Today investors will focus on the Fed's minutes. The market participants would like to find any evidence whether if there was any discussion during the most recent Federal Reserve meeting that could bring the fist interest rate hike forward. However, taking Lacker's remarks under consideration, there may be hardly any hawkish sings and in consequence the dollar can even weaken (contrary to what we expected earlier in the week). Until the minutes are published the volatility should remain pretty low.

Another slight appreciation

The zloty gained yet another a quarter of one percent since the Tuesday's morning (4.13 PLN per the Euro), but during the last session we briefly moved even lower – to 4.12. The Polish currency appreciation was in line with other EM counterparts (South African rand and Hungarian forint), what was a consequence of capital inflow to the government bond markets. Today we are slightly correcting the move and in the following days the zloty should remain in the 4.12-4.14 range.

There is an interesting interview in today's “Jorunal” with the Polish rate setter Andrzej Bratkowski. The MPC member still claims that there is a higher probability for interest rates hikes than cuts (as a first move) “although the chance for a cut has risen compared with a few months earlier”. He also claims that if we see a growth slowdown or EUR/PLN drops “below 4 zlotys [per Euro] in a very short time frame”, it would be “an argument to cut borrowing costs”. Moreover, if we see arguments for to loosen the monetary policy, the action should be “swift and decisive”. “I could see rate cuts by even 1 percentage point, although not in a single move, of course” Bratkowski told the “WSJ”. Concluding Bratkowski's remarks and other MPC members opinions the central bank officials will closely monitor the incoming data and if they see strong evidences that the economy is losing its steam they might consider loosening monetary policy.

Incoming hours for the zloty should be fairly calm. We will probably stay near the current levels both on the Swiss franc and the Euro. The local currency pairs should also be fairly resistant to any Fed's minutes outcome.

Expected levels of PLN according to the EUR/USD rate:

Expected GBP/PLN levels according to the GBP/PLN rate: