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Daily analysis 20.03.2017

20 Mar 2017 12:26|Marcin Lipka

The message from the G20 summit had a minor impact on the currency market. Ignazio Visco of the ECB on the perspectives for interest rates, regarding the QE. This week will bring new testimonies from the Fed members. The zloty remains relatively strong against the main currencies and becomes stable against the forint.

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

  • 17.45: Jens Weidmann’s testimony.
  • 18.10: Charles Evan’s testimony.

Minor impact on dollar

This morning, the EUR/USD was at the 1.0750 level. This was approximately 20 pips above this pair’s level from Friday’s closing. Due to the fact that there was no crucial data during the weekend, this move must have been caused by the message from the G20 summit.

Even though a 0.2% change in the dollar’s evaluation is nothing spectacular, the message from this meeting was clearly different than the message from the previous G20 summit in China. Primarily, it didn’t reject the protectionist policy.

Another interesting element is the lack of references to trading. This was most likely a result of the new American administration’s policy. However, different opinions have been appearing as well. According to “The Wall Street Journal”, the Japanese minister Taro Aso suggested that the opinions regarding the American protectionism are exaggerated.

Therefore, the matter of potential changes in the foreign trade may remain the main topic of several discussions. However, not only their impact may be limited for the time being, but it also doesn’t have to be negative for the dollar. This is especially taking into consideration that the chances for the Border Adjustment Tax in the USA would increase.

ECB and Federal Reserve

Today, Bloomberg television broadcast the interview with Ignazio Visco of the ECB. The analysis of his statements doesn’t indicate that the European monetary authorities had been planning rate hikes before the end of the QE. However, the period between the end of the QE and rate hikes may be shorter than in the case of the United States.

Moreover, the ECB may resign from suggesting further monetary easing (currently, the announcement suggests reduction of interest rates or leaving them unchanged.) We can’t rule out that this would happen in June, when the new macroeconomic projections are revealed. Due to the fact that this was already discussed in March, the market shouldn’t be surprised.

Nevertheless, the market should remain sensitive to any suggestions regarding more rapid rate hikes. Today’s testimony from Jens Wiedmann should also be analyzed regarding this matter.

We should also take note that nine representatives of the Federal Reserve will make their official testimonies this week (including Janet Yellen on Thursday and William Dudley tomorrow). It’s also possible that the FOMC members would make appearances in the financial press. We think that the general message from the Federal Reserve will sustain its message about at least two rate hikes for this year and three rate hikes for 2018 (excluding Neel Kashkari who has been against rate hikes and the dovish James Bullard.) This should protect the dollar from further declines.

Zloty continues to benefit from global trends

We could see the positive sentiment towards the emerging market currencies very clearly on Friday afternoon. Despite negative readings from the Polish economy, the PLN gained value. The dollar and the franc both went below the 4.00 PLN level and the euro was pushed below 4.30. Slight changes have been observed on the PLN/HUF. This confirms that the moves on the zloty have been generated by the global matters.

The zloty is also not harmed by the dovish comments from the Polish MPC members. According to the Polish Press Agency, Jerzy Kropiwnicki said that he doesn’t expect inflation goal to be exceeded within the forthcoming twelve months. Moreover, he claimed that interest rates will remain unchanged for the next year. This information is theoretically negative for the zloty, but due to the recent dollar’s wear-off, as well as to a positive sentiment towards the emerging markets, it has a very minor impact on the Polish currency.

20 Mar 2017 12:26|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

17 Mar 2017 15:28

Afternoon analysis 17.03.2017

17 Mar 2017 12:19

Daily analysis 17.03.2017

16 Mar 2017 15:34

Afternoon analysis 16.03.2017

16 Mar 2017 12:24

Daily analysis 16.03.2017

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