Daily analysis 28.11.2017

The EUR/USD pair below the 1.1900 boundary during the midday trade. Statements by Robert Kaplan from the Federal Reserve and future Fed president, Jerome Powell. The zloty remained stable, although an increase in risk aversion has slightly weakened the domestic currency in relation to the dollar and the franc.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 3:00 p.m.: Changes in real estate prices in the USA according to S&P CoreLogic CS (September estimate: 6.04%),
• 3:45 p.m.: The hearing with Jerome Powell before the Senate's Banking Commission,
• 4:00 p.m.: Consumer confidence index by Conference Board (November estimate: 124 pts).

Slight deterioration of sentiment

Yesterday afternoon, there was a slight cooling of broad optimism for emerging market currencies as well as those whose valuation depends on risk appetite. The yen and the Swiss franc strengthened. Bloomberg wrote, quoting Kyodo News, that according to Japanese officials, North Korea was preparing a missile test.

Therefore, the information in the Korean Peninsula has been good reason to react to recent increases. Although the EUR/CHF pair returned to the 1.1700 level at the beginning of the European session, further reports on increased political risk in Ireland caused the euro to start to depreciate again. The situation was similar for the EUR/USD pair, which started Tuesday's quotations above 1.1900, but around midday it returned to a level below this value.

In turn, in the United States, despite the many statements made by Republican senators, there is still no breakthrough in the context of the vote on tax changes. The Wall Street Journal wrote that there are about two or three senatorial groups who either want deeper cuts in the fiscal burden, fear a too-rapid increase in the deficit, or do not want tax changes to be combined with changes in the healthcare system. However, it still seems that the Senate will vote on the bill on Thursday. This should, in turn, open the way for a joint tax plan between the House of Representatives and the Senate.

Federal Reserve's opinions

This afternoon, Jerome Powell will be interviewed (in order to confirm his candidature for the President of the Fed) before the Senate Banking Commission. However, the text of his speech was published yesterday. It is relatively short and rather courteous. Apart from the suggestion of a further gradual increase in interest rates, if the economy behaves as expected, it does not give any important hints regarding the Fed's future monetary policy. However, the senator’s Q&A session may be more interesting, especially in regards to the approach to the recent inflation falls (whether it is more of a temporary state or it results from fundamental factors).

Before this question can be answered, Robert Kaplan's speech yesterday should be seen. The Dallas Fed president (close to the FOMC consensus, and probably also to Powell's opinion) stated that the recent fall in inflation was partly temporary and partly due to technological changes or globalisation. According to Kaplan, the neutral nominal interest rate level is around 2.5%.

In his speech, Kaplan drew attention to the potential imbalance in the US economy. He emphasized very low volatility on the stock market (one year without a decrease exceeding 3%) combined with a small turnover volume (half of what was observed in 2007). Moreover, he was also concerned about the path of federal debt, albeit less worried about the indebtedness of companies. In the afternoon, it is possible that Senate representatives may also ask for aforementioned issues during Jerome Powell's hearing. The greater that Powell's concerns about US economic imbalances are (labour, stock or debt market), the greater the chance that a speech could be judged to be a relatively hawkish.

Slight correction on the zloty

The dollar and the franc's quotations are one and two points higher than yesterday's trading in the European session, respectively. However, the changes on the USD/PLN or the CHF/PLN result mainly from movements on the global market. The euro's valuation remained in the range of 4.20-4.21 PLN and the core scenario shouldn’t change much in the following hours.

An element of risk for the zloty would be a more significant deterioration of the global sentiment, manifested by a relatively high appreciation of the franc or price depreciation on the US stock market. Moreover, Jerome Powell's hawkish speech to the Senate Banking Commission could also raise the yield on the US Treasury bonds, strengthen the dollar and affect the entire currency basket of emerging markets. Although such a development cannot be ruled out, it is still more likely that the positive sentiment towards EM's currencies, including the zloty, will be maintained.