Daily analysis 15.02.2017

Yellen’s message was relatively hawkish. However, it didn’t change significantly the market expectations regarding the future interest rates. A positive report from the British labor market was eclipsed by worse than expected increase in salaries. The zloty remains stable after yesterday’s news from the Fed. The EUR/PLN remains near 4.30.

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

• 14.30: The American CPI for January (estimates: positive 0.3% MoM, positive 2.4% YoY; excluding fuel and food: 0.2% MoM, 2.1% YoY).
• 14.30: The American retail sales for January (estimates: positive 0.1% MoM; excluding fuel and cars: 0.3% MoM).
• 15.15: The American industrial production (estimates: positive 0.2% MoM).

March remains unlikely

Yesterday’s testimony from Janet Yellen was relatively hawkish. However, this didn’t cause clear growths on the dollar. Before the testimony from the Fed chairwoman was published, the dollar’s index was at the level of 100.9 points and only reached 101.2 points at the end of the American session. Therefore, its growth was at the level of approximately 0.3 percentage points. The reaction of the treasury bonds was minor as well. Profitability of the American two-years treasury bonds increased from 1.20% to 1.23%.

Yellen’s testimony, as well as the Q&A session, did not contain any moment that would suggest a significant acceleration of the monetary tightening. However, there were many excerpts that emphasized three rate hikes for this year, as the base case scenario. Yellen said that, “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”

It’s also worth taking note that Yellen basically didn’t present any arguments against rate hikes, taking into consideration that an increase in the GDP, inflation, employment and salaries may appear to be slower than it is in the base case scenario. Moreover, the matter of potential impact of the fiscal policy on an increase in the global economic growth was mentioned in the context of a potential positive impact on interest rates.

Janet Yellen also sounded more hawkish, in comparison to her statements from the 20th of January. At that time, she emphasized a small likelihood of an overheat of the economy or the labor market. She also said that the monetary tightening should be gradual. Moreover, a moderate announcement from the previous FOMC meeting, as well as positive data regarding salaries growth, suggested that Yellen’s rhetoric would remain moderate.

Yellen also said that another hike may occur in March, May or June. Despite the fact that mentioning March might have been surprising, the significance of this message was decreased by mentioning May and June.

In conclusion, Yellen’s suggestions are a positive sign for the dollar. However, plans from the new American administration regarding changes in the tax system are more significant for the American currency. They will most likely be crucial for the USD evaluation in the forthcoming months.

Pound is weaker

Worse than expected data regarding baseline inflation from Tuesday was harmful for the pound. Today, the British Office for National Statistics published a remarkable report regarding the labor market. The unemployment rate is near its lowest level in forty years. Significant declines have been quoted in the case of jobless claims. Moreover, the employment rate for citizens in working age reached the level of 74.6%, which is its best result in history.

However, there was one problem. The salaries growth index decreased from 2.8% YoY to 2.6% YoY. The market estimated that this index will sustain its value from November. Combined with yesterday’s inflation reading (worse than expected), this data allows the Bank of England to sustain its mild monetary policy, which is negative for the pound. The GBP/USD is by approximately 100 pbs lower than it was before the data.

Positive condition of zloty

The zloty remains relatively stable against both the euro and the franc. Moreover, its wear-off against the globally stronger dollar is limited. The zloty is also strong against the forint. The PLN/HUF is near 71.70 and continues to grow.

This afternoon, we will receive macroeconomic data from the USA (CPI, retail sales, industrial production). The CPI reading should be the most significant. If this index is above the level of 2.2% YoY, the dollar (additionally supported by yesterday’s testimony from Yellen) may increase its growth scale. However, it’s unlikely that the USD/PLN will go above 4.10, even if all readings are better than expected. The EUR/PLN should remain near the level of 4.30.