Daily analysis 27.07.2015

Commotion regarding secret publications of the prognoses of the Federal Reserve economists, questions the official scenario of rate hikes in the USA. The Ifo readings from Germany were better than expected. The zloty wears off along with a significant overvalue of the Turkish lira and a general deterioration of the global sentiments.

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

• 14.30: Orders for durable goods in the USA (estimations: +3.2% m/m; excluding orders for means of transport +0.5% m/m).

Commotion from the Federal Reserve

Last Friday will not leave good memories for the Federal Reserve representatives. In the afternoon it appeared that the FOMC economist’s June projections had been on the Fed websites for a month. Officially they should be kept secret for five years from the day they were prepared.

The purpose among others is to help the other Fed governors (members of regional departments have their own research teams) to make assumptions regarding the future monetary policy. It has been said that the error was noticed by one of the American central bank's employees earlier that week. However, the monetary authorities decided to reveal this fact on Friday afternoon.

Initially, the revealed data were showing a quite bizarre relation. In comparison to the FOMC members themselves, the Fed economists predicted a significantly faster increase in this year's GDP, but at the same time a milder scenario for interest rates. However, later it appeared that there was an error in the official announcement and the predicted economic development of the USA is significantly less.

As a result, the correct estimations of the American central bank's economists show that in 2015 the US economy will develop at a rate of 1.55%, while the consensus of the Fed members from their recent meeting was between 1.8 and 2.0%. This was considered dovish, because it was by half a percent less than in the data from March.

Additionally, the future scenario for the interest rates worked out by the Fed economic team, assumes that at the end of 2015 the cost of a loan will be 0.35%, while the median of the FOMC anticipations assumed 0.625%. Thus it shows that the Fed economists assume just one hike and the Fed members assume two.

According to the FOMC economists the tempo of monetary tightening itself will also be milder. They claim that interest rates will be 1.26% at the end of 2016. This means less than a one percent hike through the whole of next year. In order to compare, in June the median of the Fed members showed tightening that reached 1.625% at the end of 2016.

Of course, there is still a basic question – should this have any kind of impact on the condition of the American currency? If this was a different period, the effects would probably be barely visible. It is because any estimations that are more than one and a half years ahead are burdened with high possibility of errors.

However, it is practically the eve of the first interest rates hike in almost 10 years. The market is currently very sensitive to any information. Thus, it can assume that the Fed economists may be closer to the truth in their estimations than the Federal Reserve members who are more exposed to outside factors.

This factor can significantly disturb our scenario of enforcement of the American currency. Additionally, the market can keep in mind the estimation leaks at least until the publication of September's macroeconomic prognoses.

Better Ifo reading from Germany

After average PMI readings from Germany, today we received much better data from this country. The entrepreneurs sentiments measured by the Ifo index increased by 108 points, while the expectations were in the limit of 107.2.

According to the institute conducting the research, sentiments were improved due to a decrease in anxieties regarding Greece. An improvement in the situation of the industry and the biggest hike in wholesale sub-index since February 2012 are also worth noting.

As a result, the weakness of the American currency caused partly by the Fed publications and partly by better Ifo readings pushed the main currency pair to the area of 1.1100. It is possible that the dollar will remain under pressure until the announcement after the Fed meeting on Wednesday.

Few words about the foreign currency market

The publication of secret estimations of the Federal Reserve economists slightly complicates the scenario of enforcement of the American currency before the FOMC meeting on Wednesday. Today, a reading regarding the orders for durable goods from the American economy will be published. However, even if it appears to be good, it can still have a significantly smaller impact than the dovish scenario for the interest rates, and pessimistic indexes of the American economy published by the experts from the Fed.

Deterioration of the global sentiments has a negative impact on the zloty

The zloty was stable to the euro practically until the end of last week. However, a clearer overvalue of the foreign stock markets and an increasingly tense situation in Turkey caused the capital to outflow from the emerging markets. This also had an impact on the overvalue of the national currency.

Further deterioration of the situation on the capital market and an increase in a strong overvalue of the Turkish lira will both lay weight on the PLN. However, the zloty should begin to lose less than the raw material currencies, or currencies of the countries with a serious deficit in their current account (for example the South African rand).

However, when the tension on the market will decrease the EUR/PLN should return to a balance. Currently it is in a range between 4.10 and 4.13 PLN.

Anticipated levels of PLN according to the EUR/USD rate:

Anticipated GBP/PLN levels according to the GBP/USD rate: