The minutes do not suggest a postponement in the raising of interest rates beyond 2015. A further improvement in the situation on the emerging markets. The zloty takes advantage of better global sentiment, and the EUR/PLN depreciates below 4.22.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 15.15: Testimony from Dennis Lockhart from the Federal Reserve.
No surprises from the Federal Reserve
In the opinion of a part of the market's participants yesterday's minutes were more dovish than they could have been expected. The Federal Reserve sacrificed a lot of time for speaking about the negative influence of the strong dollar on export, a decrease in the price of raw materials that depreciates the basic readings of inflation, and also a commotion on the emerging markets that may have a negative impact on the global economy.
A wide discussion regarding the external factors themselves is a dovish signal. The FOMC focuses more on the events from the national economy rather than the foreign news which is only additional information. However, we already knew this before the publication of the minutes, because Janet Yellen commented widely on the global matters during her testimony.
In general, the description of the economy's condition was positive. ”Despite the fact that the net export remains weak, the expenses of the households and enterprises increase at a moderate pace, and the real estates market continues to revive. The labour market continues to revive with a solid increase in the number of jobs and decreasing unemployment”, as it says in the FOMC discussion.
As a result, “the majority of the members still expect the conditions of monetary tightening to be fulfilled, or likely to be fulfilled by the end of the year. One may come to such conclusions, considering the opinion of the members regarding future economic conditions, the labour market, and inflation”.
This year's hikes are also confirmed by the latest survey of The Wall Street Journal. It says that 64% of economists expect the first monetary tightening to be in December.
Of course, when analysing the previous surveys, one can see how the majority was wrong. According to the WSJ study from January, the tightening was expected in June. The study from the holidays indicated September as the date of hikes, and now they are said to occur in December. However, it is worth noting that these decisions were postponed due to many strong economic disturbances – the low readings of the American GDP for the first quarter, or the strong commotion on the markets during the holidays that was not supportive for the monetary tightening. Additionally, the Federal Reserve has been mentioning “this year's hikes” for many months. Yellen's testimony from the end of September indicates that this is still the base case term.
Thus, considering the statements from the particular members of the Federal Reserve and the minutes from yesterday, one should not expect the Fed to withdraw from this year's hikes. Unless, the data from the USA will significantly deteriorate, or the global situation will be even worse than in September.
Few words about the foreign market
The direct reaction on yesterday's minutes on the EUR/USD was mixed. The main currency pair finished the day below the limit of 1.1300. However, a wider wear off of the American currency occurred in the morning. Its reasons are to be found in the emerging markets. Only for the past 5 days the Indonesian rupiah gained over 9% to the dollar, on the wave of a rebound of the raw materials market. Almost as spectacular results were achieved by the Russian rouble, and the Malaysian ringgit. They gained respectively 8.3% and almost 7%.
Even though the contribution of these currencies is not great, the observed capital outflow from the dollar slightly supports the main currency pair. However, it is worth noticing that due to the return of the carry trade, the global situation will rather have a negative impact on the euro, despite a decrease in the quick extension of the QE. Also, a better sentiment on the emerging markets is a bigger chance for the pace of monetary tightening in the USA, which is coherent with expectations. This fact should also support the American currency. As a result, the movement upwards should be limited, even if it will be extended.
The national currency takes advantage of the improvement in sentiment
Better global sentiment translates to an appreciation of the zloty. These are not the increases comparable to the ones observed on the raw materials currencies, but the EUR/PLN decreased by approximately 0.02 PLN to the average rate observed yesterday. The situation on the USD/PLN looks even better – since yesterday's opening it lost more than 0.05 PLN.
The maintenance of good sentiment on the global market remains the base case scenario. However, the chances for the EUR/PLN to go below 4.20 are still slight. Also, one should not expect the franc to cost less than 3.85 for the time being. Especially that the pace of capital flow from the developed to the emerging markets will probably decrease, even if the global sentiments will remain good. This will also disable such quick appreciation to continue.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate: