Daily analysis 11.04.2017

Yellen’s testimony had a minor impact on the currency market. Inflation pressure on the United Kingdom continues. The eurozone’s industrial production appeared to be worse than expected. The zloty is losing value due to the worsening of the sentiment towards the emerging market currencies.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

• No macro data that could significantly impact the analyzed currency pairs.

Yellen’s impact on market was minor

Yesterday’s testimony from Janet Yellen had a minor impact on the currency market. During her appearance at the University of Michigan, the Fed chairwoman didn’t speak much of the current monetary policy, nor did she refer directly to the matter of the Federal Reserve’s balance in the near future.

Therefore, the subject of a short pause in rate hikes was not brought up and yesterday’s event should be interpreted as neutral. That was the exact reaction of the market.

The dollar’s behavior will most likely be determined by the macroeconomic data in the near future. This week, we will know the readings regarding the CPI and the retail sales. There are not many testimonies from the Federal Reserve members planned for this week. Moreover, we most likely will not know any new details regarding the American administration’s fiscal plans before Easter holiday. Therefore, the economic readings will be the only elements that may cause significant moves this week.

British inflation and eurozone’s production

The data regarding British inflation for March (provided by the ONS) appeared to be consistent with the consensus (2.3% YOY). However, a worse result could have been expected, especially taking into consideration a decrease of inflation growth in the eurozone (due to lower travel costs).

The plane ticket prices in the United Kingdom decreased by 22.9%. However, this decline was balanced by the other categories. This goes to show that inflation pressure in the United Kingdom is increasing, which is most likely related to the pound’s wear-off. Prices of clothes, furniture and food and beverages increased 2.0% MoM, 0.7% MoM and 0.4% MoM, respectively. Due to the fact that inflation growth may alter the Bank of England’s dovish attitude, the pound gained value. However, we need to keep in mind that inflation growth is beginning to exceed salaries growth. This may translate to decreasing consumption, which would result in maintenance of the mild monetary policy. Therefore, this data may support the pound in the short-term, as well as harm it in the long-term.

The eurozone’s production data was yet again weak. This is especially taking into consideration that he PMI data has been at its maximum. In February, the industrial sector’s activity increased 1.2% YOY, against the expected 1.9% YOY. Moreover, the data for January was revised from 0.6% YOY to 0.2% YOY. After acceleration of the economic activity at the end of 2016, we have been observing its clear wear-off in the first months of 2017. This is a disturbing signal, which has confirmed anxieties that the soft data (sentiments, surveys) is not consistent with a clear economic growth. This may be a good argument for the ECB to sustain the mild monetary policy.

Zloty is weaker

The emerging market currencies were weak during the Asian session today (including the South Korean won). Moreover, the combination of the strong yen with the strong dollar, may have translated to the sentiment’s deterioration in Europe.

However, it’s worth noticing that despite the EUR/PLN testing the area of 4.25 and the dollar going above the 4.00 level, the zloty remains relatively strong. Due to the fact that there is no mass capital outflow from the emerging markets, the scale of the zloty’s wear-off shouldn’t be extremely large. Moreover, today’s inflation data from the Polish Central Statistical Office will most likely have a minor impact on the PLN. This is because this index’s initial reading it has already been published.