Daily analysis 22.03.2016

The pound clearly lost value after information from Brussels. Dennis Lockhart spoke of a return to normalization of the monetary policy. The zloty remains stable, and the EUR/PLN is quoted slightly below the level of 4.25.

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

• 14.45: PMI reading from the American industrial sector (estimations: 51.9 points).
• 17.30: Statement from Charles Evans of the Fed.

Pound is again under pressure

This morning’s events in Brussels have disturbed the quotations of the currencies to a certain degree. The EUR/USD went below the level of 1.1200. The franc and the dollar also strengthened slightly. However, it is worth noting, that the pound has been overvalued the most. The British currency lost approximately 1% of its value against the dollar, and half percent against the euro.

The wear-off of the pound is a result of increased anxiety regarding Brexit. In case of the events related to the national safety, there is an increasing risk that the British will be more willing to leave the European Union, even if it would mean an economic disturbance.

Moreover, the market continues to receive reports, suggesting that the economy in the United Kingdom will suffer losses due to the Brexit. According to Bloomberg information, the Moody agency’s opinions are the same as the opinions of Standard & Poor's, as well as Fitch’s. The agency forecasts that if the United Kingdom is not able to negotiate the same access to the market as it currently has, leaving the EU will be a danger for profits of the British enterprises.

Uncertainty concerning the pound is also generated by unambiguous surveys. Three recent studies conducted by the ORB and ICM show a small advantage of the Brexit supporters in two cases, and a 2% advantage of those who wish to remain in the EU. According to the Whatukthinks.org website, the averages taken from 6 recent surveys show that 49% are for the Brexit, and 51% are against it.

For the time being, a lot of factors show that the pound will be dominated mostly by the Brexit referendum for three forthcoming months. Additionally, considering the fact that financial institutions assume an overvalue of the GBP/USD by even 15-20% if the Brexit occurs, the closer the voting will be, the bigger impact the information will have regarding pound's evaluation.

Lockhart and Williams about the monetary policy

Yesterday, we had two statements from relatively neutral representatives of the FOMC. In the afternoon, John Williams said in his interview with the MNI agency that, “if the coming data is consistent with my hopes and expectations, April or June will be the potential months to increase interest rates.”

Dennis Lockhart, chairman of the Atlanta Fed, claimed in his testimony on Tuesday that, “this year the American economy on a path of a 2.0-2.5% growth,” and that, “normalization of the monetary policy will be most likely justified by this year's economic condition – most likely soon.”

Apart from the crucial elements regarding the monetary policy, Lockhart sounded optimistic in the context of the American economy. He explained why the Federal Reserve withdrew from four hikes this year (market disturbances, a slowdown in China, easing of the monetary policy in Japan and the euro zone).

However, we can come to a general impression that the monetary authorities will most likely want to make another hike in June. Thus, even if we see a depreciation of the dollar on a wave of strengthening of the emerging markets currencies again, or we see changes in the wallets of investors, these decreases should be limited. On the other hand, the American currency should begin to work-off the losses with a clearer suggestion from the Fed regarding the hike.

Few words about the foreign market

Information from Brussels pushed today's macro publications wayside from the eurozone, which were in general slightly better than the expectations. The German Ifo increased more than the consensus assumed, and the PMI for the euro zone reached the level of 53.7 points against the expectation of 53 points.

Considering the news from the USA, as well as from the euro zone, they should be neutral for the EUR/USD. However, new statements from the Fed representatives suggesting bigger chances for hikes in June, may be a sufficient enough signal to start a depreciation of the main currency pair towards 1.10.

Zloty remains stable

Quotations of the zloty continue to be relatively calm. The EUR/PLN is approximately 0.01-0.02 PLN above the level of 4.25. The dollar is slightly stronger due to information from Brussels, among others. However, for the time being we should not expect a clear increase above the level of 3.80.

On the other hand, the Polish national currency became stronger to the pound. The GBP/PLN is closer to reach the area of 5.40. This is its lowest level since December 2014. Moreover, it is worth noting that the zloty worked off almost the entire loss against the forint. The PLN/HUF is now above the level of 73, while at the end of January and in mid-February the Polish national currency was evaluated below 70 forints.

In general, stabilization against the euro remains the base case scenario for the zloty. Only a clearer deterioration of the global sentiment can cause the EUR/PLN to increase near 4.30.