Daily analysis 20.02.2017

Statements from Loretta Mester of the Fed, the Japanese trade balance and the German producers inflation – none of this data has caused large changes in the currency market. The zloty worked-off a portion of its losses against the dollar, the euro and the forint.

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.

Insufficient signals

The currency market has been relatively calm today. This situation has not been changed by the negative data from the Japanese economy. In December, the export index was definitely worse than expected (positive 1.3% YoY vs positive 5% YoY) and the import index increased significantly (positive 8.5% vs positive 4.8%). Worse readings were mainly a result of a worse demand from the European Union, as well as from the USA (approximately 6%). The Japanese demand for the foreign products was increased by 36 percentage points, due to an increase in value of the oil import.

However, the Japanese data didn’t change the mild policy from the Bank of Japan, nor did it cause the basic factor of the JPY moves (carry trade) to disturb. However, the yen has become slightly weaker against the dollar, as well as against the euro. This supports the emerging market currencies, including the zloty.

Loretta Mester (relatively hawkish, no right to vote) made her testimony in Singapore. However, it didn’t contain many references to the current monetary events. Most of the matters referred to a theoretical impact of the monetary policy on the economy. The only significant statement was that Mester is comfortable with the scenario of further rate hikes. Of course, if the macroeconomic data is positive. However, taking into consideration the most recent testimonies from the Fed members, this statement is not crucial.

This week will consist of many testimonies from the FOMC members. However, many of them already made their testimonies recently. Therefore, Jerome Powell’s statement on Wednesday should be the most interesting. This is because this may vary the chances for rate hikes in March.

An increase in global inflation has been confirmed by today’s PPI data from Germany. This index increased 2.4% YoY, against the 2.0% consensus. Approximately 20% growth was quoted regarding fuel. However, even after excluding the energy component, we can see that the producer prices increased 1.8% YoY and 0.6% MoM. Nevertheless, this phenomenon has a limited impact on the monetary policy from the ECB for the time being. Therefore, this data is unlikely to translate to currency exchange rates.

In conclusion, the announcements have a minor impact on the currency market. The market constantly anticipates changes in the American tax system. And as monotonous as this may seem to sound, this (along with other ideas from Republicans as repatriation of the foreign profits, border tax and fiscal stimulation) should be fundamental for the dollar in the forthcoming months, or even quarters.

Zloty is slightly stronger

Both the dollar and the euro wore-off by 0.01 PLN in comparison to Friday (4.07 PLN and 4.32 PLN, respectively). Moreover, the zloty is by 0.25% stronger than the forint. Last Friday, we took note that the zloty’s weak condition can be related to the stronger yen. Today, the JPY has been losing value in the global market and the PLN is stronger. This may confirm our above mentioned theory.

However, regardless of changes in the financial market, the zloty has been supported by positive macroeconomic data from Poland. Therefore, it’s relatively unlikely that neutral news from abroad would cause a significant wear-off of the zloty. However, there is a chance that the EUR/PLN will stabilize near 4.30, if there is no global strengthening of the dollar or the yen.