Daily analysis 23.02.2017

The Fed suggested a forthcoming rate hike. However, the message from the minutes was not hawkish enough to strengthen the dollar. The EUR/USD was disturbed by the news from France. The zloty wore-off this morning, but the EUR/PLN remains near the 4.30 level. No breakthrough is expected from the MPC minutes.

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

• 14.00: Minutes from the Monetary Policy Council.
• 14.30: Weekly jobless claims from the USA (estimates: 240k).

Minutes were not hawkish enough

Yesterday’s message from the Federal Reserve, as well as the reaction on the EUR/USD, needs to be analyzed in view of two other matters. Primarily, one hour after the start of the American session, the market received an information that Francois Bayrou resigned from running for the president office in France. According to surveys, he was supported by 5% of respondents. He also suggested that his supporters should vote for Emmanuel Macron. Investors have interpreted this decision as a decrease in Marine Le Pen’s chances for victory. This allowed the EUR/USD to jump from 1.0500 to 1.0550.

The second matter were the expectations regarding the Fed’s message. The majority of investors expected it to be hawkish, which would support the dollar. However, the American currency lost value, even though the minutes suggested a relatively rapid monetary tightening.

The FOMC has sustained the perspective of three rate hikes for this year. This is suggested by the statement that, “their economic forecasts had changed little since the December FOMC meeting.”

The Fed representatives have also focused on an improving economic sentiment, as well as increasing difficulties in hiring proper employees. A few FOMC members also claimed that, “continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the Committee greater flexibility in responding to subsequent changes in economic conditions.”

The latter statement may appear extremely significant, if the fiscal budget for 2018, as well as the plans regarding taxes are revealed before the FOMC meeting in March. In this scenario, the above mentioned members (those with the right to vote) could vote for rate hikes in March, even if this doesn’t increase interest rates. This would be a relatively hawkish signal, which would open the door for rate hikes in May.

However, before we will receive new specific signals from the Fed, we should focus on Donald Trump’s testimony in the American Congress on Tuesday, as well as on the budget presentation (most likely at the beginning of March). The latter event may contain fiscal changes, which were announced during the election campaign. This may be a crucial signal for the dollar.

Zloty is slightly weaker

This morning, the EUR/PLN tested the area of 4.31. Moreover, the zloty is approximately 0.3% weaker against both the franc and the dollar. However, potential changes remain limited. They are a result of the global sentiment towards the emerging market currencies, rather than of a worse condition of the PLN.

This afternoon, the National Bank of Poland will publish the minutes from the MPC meeting in February. Taking into consideration the previous announcement from the Council, as well as the recent statements from its members, it’s very unlikely that the recent inflation growth has convinced the MPC to make changes in interest rates. The minutes will most likely indicate that a neutral attitude remains the base case scenario. This should be consistent with the market expectations. Therefore, we don’t expect any significant reaction from the PLN. However, President Trump’s testimony in the American Congress may appear crucial for the zloty as well. This may strengthen the dollar significantly, if the economic changes announced during the campaign begin to be implemented.