Daily analysis 11.02.2014

Speculations about today's Janet Yellen's speech in front of Comitee for Financial Services of American House of Representatives. Dove Rosengren casts some light on Fed's plans. Clear reduction of prices of Hungarian forint after Goldman Sachs report. Rzońca and Chojna-Duch about national “forward guidance”.

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

• 14.30 CET: Publication of Janet Yellen's speech.
• 16.00 CET: Janet Yellen publishes the report about Federal Reserve monetary policy, in front of Comitee for Financial Services of American House of Representatives. Fed's chairwoman will also answer questions.

Yellen. Rosengren. Hungarian forint

The discussion about today's Janet Yellen's speech itself warms up investors' emotions. Most of all, it awakened significant anxiety amongst the dollar optimists. American currency has clearly gone weaker in relation to Euro and the EUR/USD pair began to get near the 1.3700 level. Despite the definite majority not expecting any declarations from new Fed's president, the slight uncertainty caused the reduction of few “long” positions on USD. Dollar's sale could definitely accelerate though, if it would appear that Fed's chairwoman signals some changes in American monetary policy. The strongest reaction (that weakened the “buck”) was caused by suggestions about temporary stop of coming out from quantitive easing operation, because of weaker than expected data from the labour market. Another argument that is disadvantageous for dollar were the suggestions about possible modification of forward guidance. Vincent Reinhart, president of American economists at Morgan Stanley, presented an interesting concept on this topic at MarketWatch website. He noticed that Federal Reserve delayed the publication of annual “mission statement” (where among others stability of prices by inflation on level of 2% in long term is defined). Reinhart claims that Yellen can pass on some details about hypothetical change of “mission statement”. These details would concern the introduction of condition of inflation's level (below which money rates will not be raised – author's footnote). They may also concern the modification of 6.5% level of unemployment in forward guidance (e.g. because of decreasing labour force which disturbs the unemployment statistics – author's footnote). Another negative information for the dollar would be mentioning about emerging markets situation (just as it was done lately by Mario Draghi). One should remember though, that the possibility of introducing any modifications in monetary policy during today's audition is much smaller than keeping current guidelines of Federal Reserve.

The interview with Boston's Fed chairman (dove, not voting this year) that appeared in “The Wall Street Journal” is a little in the shadow of Yellen's speech. Eric Rosengren stated, that two last labour market reports were “a bit disappointing”, but they are not enough to change the gradual exiting from quantitive easing. If the following data would suggest the market's slowdown though, then “a serious discussion about changes in monetary policy should be in order”. Further on Fed's representative mentioned, that before next FOMC summit (in March) we still have one labour market report left. He suggests, that if following payrolls would be as weak as those from January or December, there would be a possibility of stopping the exiting from quantitive easing for 1-2 summits (as Bernanke noted in December).

From the beginning of this week, we can observe a clear weakening of forint in relation to main currencies. EUR/HUF pair increased by one-and-a-half percent during two days. The direct reason of Hungarian currency's value decrease was the information from Goldman Sachs. Bank's economist in London, Magdalena Polan, stated that “erosion of money rates is for Hungary the strongest, characteristic and distinguishing element causing the last sale”. Polan also claims that central bank will decide on a “small and symbolic” reduction of money rates on next week's summit. The economist thinks that exiting of EUR/HUF above the level of 320-325, would cause, that “the chance for increase would be bigger than the chance for decrease”. In general, we can observe that the sentiment for forint is negative (small chances for acceleration of GDP or inflation) and further easing of monetary policy causes an extra pressure on HUF.

In conclusion, the market will observe Janet Yellen's speech with increased attention. Any dove references will be used as an excuse to dollar's sale and main currency pair's movement above 1.3700. If the new chairwoman will keep the attitude presented at previous Federal Reserve summit though, we can expect EUR/USD to descend below 1.3600.

Rzońca and Chojna-Duch

Two opinions of Monetary Policy Council members appeared on the market yesterday. The dove one came from professor Chojny-Duch, who said in the interview for Polish Press Agency: “It is not impossible that the period of money rates stabilisation, defined by the Council for at least the end of this half-year, can increase. I can imagine the situation, in which money rates can remain stable for the whole year”. On the other hand, another member of MPC, Andrzej Rzońca, claimed in his statement published for Reuters, that due to the increasing economic growth (GDP will quickly break through +3% and can even reach 4% in the second half of the year) “there is not a slightest reason to increase the declaration of keeping constant money rates for a longer time today” (so for a longer time than until the mid 2014 as it is said in the report – author's footnote). It seems that the Council will be again divided on to doves and hawks. Such situation took place in the beginning of year 2013. Both announcements should be relatively neutral for the markets for now. MCP summit in March will have a clearer influence for zloty.

Today the national currency should move in the rhythm of words spoken by Janet Yellen. All dove statements will be an occasion for the growth of PLN value. This movement though will probably not cross two grosze on EUR/PLN pair.

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

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