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Daily analysis 24.08.2016

24 Aug 2016 13:50|Marcin Lipka

The pound is gaining value due to the fastest in almost ten years growth of consumption credits in the United Kingdom. Arguments in favor of more dovish testimony of Janet Yellen in Jackson Hole. The zloty remains relatively stable against the euro, as well as the dollar. The pound is testing the area of 5.05 PLN.

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

  • 16.00: Sale of houses in secondary market in the USA (estimations: 5.51 million in annualized interpretation).

Pound is growing again

Today, we are having yet another session with an improvement of the British currency. This morning, the pound's value expressed in dollars was 1.3230. Also, the British currency reached the 5.05 level against the zloty. This is 0.15 PLN more than it was in mid-August. There is quite a large chance for this rebound to be continued. This is because it's supported by the incoming macroeconomic publications.

Apart from retail sales data or the labor market reports, the market received consumption credit data today. According to the British Banks Association (BBA), it increased 6.4% y/y in July. This is its largest growth since December 2006. Pace at which the companies are being financed is currently at the positive 2.6% level, which is its largest since the beginning of 2015.

Bloomberg cited Rebecca Harding's (the BBA chief economist) commentary regarding the data. She said that, “currently the data does not suggest that the credit trends have clearly been disturbed by the Brexit referendum.” Apart from positive information from the BBA, it is also worth noting that the amount of accepted applications for mortgage loans, decreased significantly. It was 19% lower than it was in July 2015. On the other hand, we need to emphasize that the amount of mortgage credits has been decreasing since the beginning of the year. Therefore, Brexit is probably not the main reason for this reduction.

Brexit has a limited impact on the condition of the British economy for the time being. If this is confirmed by new macroeconomic data, the pound will have a chance to continue increasing. In the optimistic scenario, the GBP/USD may even exceed the 1.35 level and the GBP/PLN – the 5.20 level. However, there are still many dangers for the pound in the long-term. The probability that the recent minimum is going to be increased remains relatively high.

Jackson Hole

The fact that the EUR/USD is going slightly below the 1.1300 level may suggest that the market is disposing towards a more hawkish Janet Yellen's testimony on Friday. However, it's worth noticing that this attitude is mostly based on interpretation of the recent statements from William Dudley, as well as from Stanley Fisher.

Primarily, we have recently took note that this interpretation was determined by the reaction to the headlines from information agencies, rather than a wider context of testimonies. Secondly, we need to keep in mind that the majority of the voting FOMC representatives didn't want to suggest a fast monetary tightening in July's minutes. It is most likely that Janet Yellen was among them.

Moreover, if we go back to Janet Yellen's most recent (not counting the press conference after the FOMC meeting) official testimony on the 6th of June, we will see that the Fed chairwoman continues to dispose towards the dovish faction of the Federal Reserve. It is shown by her suggestion that tightening the monetary policy too soon would cause larger risk in the current monetary conditions.

On the other hand, the market may interpret an increasing temperature of the discussion regarding a low level of the neutral r* interest rate (the one that doesn't stimulate nor chill down the economy) as dovish. Yellen partially announced this topic in June. Moreover, Bullard, Fisher and Williams referred to this in a more direct way most recently. Ben Bernanke, the former FOMC chairman, has mentioned this matter at the Brookings Institution blog as well.

If it appears that Yellen's studies regarding r* clearly suggest the necessity of its decrease (the Fed members have seen r* within the 3.0-3.3% in June's projections), it will make the short-term perspectives for the dollar unfavorable. Moreover, the chances for appreciation of the American currency in the forthcoming quarters would not be so certain anymore.

No larger changes on PLN


The zloty market, as well as the forint market, are very calm. Since the beginning of the week, the majority of EUR/PLN quotations is near the 4.30 level. The dollar and the franc are quite stable as well. On the other hand, the pound's value is growing. Currently, the British currency is at the 5.05 level, which is a near value to the levels that were observed shortly after the BoE meeting.

The chances that the zloty's quotations will clearly change before Friday are small. Janet Yellen's testimony should be a significant moment for the PLN. If it appears that the Fed chairwoman does not suggest the moment of monetary tightening and her testimony is focused on a lower neutral interest rate, the Polish currency will most likely gain against the dollar, as well as the euro. On the other hand, if our base case scenario does not fulfill, the USD/PLN appreciation may be significant and reach above the 3.85 level.


24 Aug 2016 13:50|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.

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