Daily analysis 29.05.2017

Dissonant opinions about the condition of the American economy two weeks before the Federal Reserve meeting. Pressure on the pound has been sustained due to a new portion of surveys from the United Kingdom. The zloty has been stable.

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

• 15.00: Mario Draghi’s testimony in front of the Parliament

Essential testimonies from FOMC members

Today, the stock market is closed in both London and New York. This means less macroeconomic data, lower liquidity and random changes. The latter will most likely not be sufficiently significant to revise the ongoing trends. Nevertheless, it’s worth noting that the forthcoming days are filled with testimonies from the crucial FOMC members. This should help to estimate the direction of the Federal Reserve’s message for June and whether it will be more hawkish, or will indicate an increasing uncertainty regarding the economic situation.

The first of the aforementioned scenarios has been supported by today’s comments from John Williams. He emphasized that three rate hikes in 2017 make sense, as well as the fact that inflation is most likely to reach the 2% level within one year. He also said that he’s not afraid of the “rough landing” of the Chinese economy.

A few hours after Williams’s testimony in Singapore, he was interviewed by Bloomberg television. In this interview, Williams had claimed that the macroeconomic data is very positive, as well as that his view on the GDP growth hasn’t changed.

Williams’s statements are clearly different from those of James Bullard’s. The latter claimed on Friday that the macroeconomic data from the USA has been fairly weak since the FOMC meeting in March. He also took note that both inflation and inflation expectations have been negative over the past few months. Bullard also suggested that the low unemployment rate readings from the USA are most likely not suggesting that inflation forecasts will become clearly higher.

Even though Bullard’s statements seem too pessimistic, some of the leading FOMC representatives could actually be strongly concerned with negative macro data. Taking this into consideration, tomorrow’s testimony from Lael Brainard, as well as Thursday’s testimony from Jerome Powell may appear essential. If both of them present opinions that are similar to those of Williams, the next FOMC meeting will most likely support the dollar. However, if it appears that they are concerned about the economic growth, the dollar’s weakness will be sustained.

Pound’s problems continue

Since last week, we have received new surveys regarding the election to the House of Commons, which will be held on the 8th of June. These surveys confirm that the advantage of the Conservative Party has been decreasing. The average result of seven surveys, which were made after the events in Manchester, only gives Tories 9 percentage points of advantage over the Labor Party.

Moreover, according to Bloomberg Theresa May’s party can only hope for the advantage of 12 places in the House of Commons, whereas this advantage was at the level of 100 places in April. After the election in 2015, Tories had an advantage of 10 places. The lack of stronger support for the ongoing policy can be interpreted as a negative forecast before the Brexit negotiation. However, if the elections show that Tories were underestimated by surveys, this would cause the pound’s rebound and the return of the GBP/USD above 1.30.

No changes on zloty

The zloty has been stable against the main currencies. The EUR/PLN was near the 4.18 level this morning and the PLN/HUF has been at the level of approximately 73.50. Due to the lack of the stock exchange session in the USA, the zloty is likely to remain at the aforementioned level for the rest of the day.

The only event that can increase the volatility of the Polish currency is Mario Draghi’s testimony in the European Parliament. Even though, we shouldn’t expect it to be crucial for the ECB’s monetary policy, headlines coming from information agencies can sometimes change the currency fluctuations in such cases.