Daily analysis 18.09.2017

The dollar is stronger despite worse than expected US data. Economists expect the Fed's interest rate path to remain similar to that of June. Comments from Jerzy Kropiwnicki, from the Polish MPC, suggest that the Council's attitude is becoming more and more dovish. This is a negative signal for the PLN in the long term. The zloty was weaker at midday. The EUR/PLN pair was above the 4.28 boundary.

The most important macro data (CET - Central European Time). Surveys of the macro data are based on information from Bloomberg unless noted otherwise.

• 2.00 p.m.: Changes in employment and wages in Poland (estimates for August: +4.6% YOY and +5.7% YOY respectively).

Before the Fed meeting

The overall tone of Friday's data from the American economy can be considered as negative. Retail sales for August fell by 0.2% MOM, and in addition, both July and June publications were revised downward by 0.3 percentage points to 0.3% MOM. As a result, consumer demand for the entire third quarter headed significantly below.

Industrial production was also weak, although the influence of Hurricane Harvey (0.75 percentage points) can be blamed for a significant part of its decline (by 0.9% MOM). However, this does not change the fact that the current quarter may be weak for the US economy. This has already begun to reflect the GDPNow model of the Federal Reserve from Atlanta. Before Friday's readings, it indicated GDP growth at the level of 3.0% (QOQ in annualised terms) for the June-August period. Now it is 2.2%. It is also worth noting that the downward reviews of retail sales had nothing to do with the natural disaster in the South of the USA, as they were concerned with June and July.

Despite surprisingly weak publications, it seems that the Federal Reserve is unlikely to withdraw from June's projections of future interest rates on increase in the cost of loans by 0.25 percentage points this year and 0.75 pps in the next one. This is confirmed by the estimates from the leading American economists published by Bloomberg in the morning.

The median of their readings assumes that interest rates will be increased in 2017 to 1.5% (upper range) and to 2.25% in 2018. The fulfilment of this core scenario should help the dollar even if the press conference had a relatively dovish course.

On the other hand, if there were more significant modifications of the monetary tightening path (no increases this year or only two in the next) then the pressure to sell-off the dollar could increase considerably. This would mean that the Federal Reserve considers the recent low inflation rates to be a fundamental change in economic conditions and not just a short-term disturbance. At this point, the core scenario appears to be more likely, but the risk of an alternative development appears to be relatively high.

The Council is heading in a much more dovish direction?

Dovish commentary on the possibility of lowering interest rates by Eryk Łon last week, could be considered as a very unlikely scenario. Also, the assessment by Jerzy Żyżyński (also a dovish MPC representative) of maintaining monetary policy parameters at current levels at least until mid-2018 also did not have to suggest a more serious easing of the Council's position.

However, what Jerzy Kropiwnicki said today may already mean that the national monetary authorities are starting to turn in a much more dovish direction. In an interview for PAP, a member of the MPC said that he sees no reason "to revise interest rates over the next 24 months". Jerzy Kropiwnicki, thus, becomes quite unexpectedly the second most dovish member of the Council after Eryk Łon.

At this point, the market has begun to gain suspicions as to whether the interest rates really have a chance to be raised in the next two years, especially when only three out of ten representatives of the Polish MPC have really hawkish views. Others, as Jerzy Kropiwnicki's example shows, can migrate relatively quickly towards a gentler approach.

Today's statements by Jerzy Kropiwnicki, especially if confirmed by at least one other representative of the Polish MPC, may cause medium-term downward pressure on the zloty. The risk of leaving the boundary above 4.30 has increased significantly on the EUR/PLN pair without any serious external impulses (e.g. Fed's somewhat hawkish position).