Daily analysis 30.01.2014

The Federal Reserve, in line with expectations, cut the asset purchase program by $10 billion USD, and didn't mention impact from EM. Hungarian forint under pressure. JPMorgan “bets against the ruble”. US GDP in focus today. Polish currency weakened, but the fall is not as severe as in other emerging economies.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

• 10.00 CET: Already published GDP data from Poland (survey +1.5%; acutal: +1.6%.
• 114.30 CET: GDP from the US (survey: +3% in the Q4 – annualized data).
• 14.30 CET: Weekly jobless claims form the US (survey 327k).

Fed, forint and ruble

“Hasta la vista, baby”. Such phrase was used (according to CNBC) by Steven Englander, Managing Director and Global Head of G10 Strategy. His comments were directed toward emerging markets after the Fed decided to cut the asset purchase program by $10 billion. Despite that the reduction was expected, some FX observers counted that some remarks will be made on EM situation, weaker jobs report or plans regarding changes in the forward guidance. The only small change which could have been picked up by dollar bears was that Labor market indicators “were mixed”, but on balance show further improvement. Further Ben Bernanke and his colleagues are predicting that the economy “will expand at moderate pace”. The Committee also points out that the “Household spending and business fixed investment advanced more quickly in the recent months”. It is also worth to point out that all FOMC voters in favor of the current statement whereas in December one Fed's member voted against the action.

On Wednesday it was worth to point out two currencies in our region. Firstly, the Hungarian forint depreciated significantly loosing around 3.8% to the euro and falling to two-year low. The move was strengthened by central bank governor. Gyorgy Matolcsy (according to “The Wall Street Journal” said that “The only monetary policy anchor is the medium-term inflation target. It is below target, which bodes well for the future” The sentence was interpreted as an indication for another rate cut in the future, what on volatile market increase the nervousness.

The second currency which has been under pressure in our region is Russian ruble. As “MoneyBeat” reports “JPMorgan Bets Against the Ruble”. The portal cites Nima Tayebi, emerging market portfolio manger at JPMorgan Asset Management. He claims that “he has no specific target for the ruble, but is positioned for a gradual depreciation over time as Russia's economy continues to face challenges”. If we look at the USD/RUB chart, the move is quite strong. The Russian currency depreciated almost 10% this year and almost 20% in the last 12 months. Monetary Policy makers recently suggested that they are ready to resign from managed exchange rate (before the turmoil began), but Reuters quoted Russian Federation economy minister who said that the plans may be modified. Moscow is keen to see a small depreciation of the ruble (export stimulation, rising income from oil denominated in the local currency can boost the economy), but a free fall of the RUB can remind the crisis from the late 90's which is not really a good association.

Summarizing, the Fed's statement should help the dollar bulls. It is possible that some of them will be waiting for today's GDP data from the US. If it turns to be in line with expectations or higher the greenback should rally and push the EUR/USD lower.

Weaker zloty

The fears regarding EM came back quite quickly what pushed the EUR/PLN to 4-month highs. It is, however, worth to mention that the slide of the zloty is one of the slightest in the region. In the recent month the PLN dropped to the greenback. A similar depreciation were observed at Korean won and the Mexican peso. On the other hand, a fairly stable recently forint is loosing 6% since the beginning of the year.

We could have observed how strong is the outside pressure today. Just after 10.00 CET the GDP growth from Poland was published. The reading was above the expectations at +1.6% in 2013 (estimates were between +1.3% to +1.5% according to PAP reports), but we didn't see any reaction.

Summarizing, the PLN should remain under pressure from other emerging market conditions. When the situation calms down (probably in a few weeks) we should come back to levels before the turmoil began.

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

Expected GBP/PLN levels according to the GBP/PLN rate: