Decreased pressure on zloty (Daily analysis 20.11.2018)

The uncertain US currency situation - lower oil prices and falling shares burden the dollar. John Williams' comments from the New York Fed were not as dovish as those made by other members of the Federal Reserve. The zloty pared some of the recent losses. The euro falls to around 4.32 PLN.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Blurred future for the dollar

Last week's comments from Fed representatives (Clarida, Harker, Kaplan) and the persistent decline in the oil market are not positive for the US currency. In addition, yesterday's share depreciation and declining yields of the US Treasury bonds were also observed. Does the dollar have a chance to find arguments for increases in the coming days?

First of all, it is worth noting that the hypothetical early suspension of interest rate increases in the USA is still not a foregone conclusion. A lot depends (as the deputy head of the Federal Reserve Richard Clarida stressed on Friday) on macroeconomic data. If the readings do not fail the market before the December FOMC meeting, it is possible that the prospect of three interest rate hikes in 2019 may be maintained.

In contrast to the recent comments by members of the Fed was the speech by John Williams yesterday. The head of the New York Federal Reserve is practically the third most important member of the FOMC (always with voting rights). During his speech at the Bronx Museum of the Arts, he stated that "interest rates are still very low. We increased them, but they are still at a low level.”

The whole speech was devoted mainly to the local economy and issues of the Spanish-speaking community (also under the supervision of the New York Puerto Rico Federation). Therefore, apart from this quotation, it is difficult to find any direct references to monetary policy, but it seems that Williams is far from changing its opinion on the need for further tightening of monetary policy for the time being.

It is also worth remembering that the situation in Europe is disappointing. Problems with Brexit can further depreciate the pound, and the situation in Italy is far from ideal. Italian 10-year Treasury bond yields reached 3.7% in the morning. In the case of German instruments with the same maturity date, yields are close to the 0.35% limit. This illustrates well the risks in Italy which are currently being valued by investors, and at some point, this fear may return in the form of a weaker euro.

While the recent increases in the EUR/USD pair resulted in a reshuffle in the Fed may be justified, a clearer breach above the 1.1500 is unlikely to have any fundamental reasons at this point in time. In addition, if good data from the USA is maintained and problems in the eurozone worsen, long-term lows can be tested on the main currency pair (around 1.1200) before the end of the year.

Zloty's stabilisation

In the morning, the EUR/PLN exchange rate fluctuated between 4.33-4.34. Around midday, the pressure on the Polish currency decreased. The euro depreciated to approx. 4.32 and the Polish currency strengthened by about 0.3% in relation to the forint and the Czech koruna. The zloty reduced by about one third the losses caused by fears about national institutional issues.

The GUS data on industrial production may also have had a positive impact on the improvement of the zloty's condition. It increased slightly above market estimates (7.4% y/y vs. 6.6% y/y). In seasonally adjusted terms, a solid upward trend was maintained (5% y/y), which is particularly important in the context of the observed economic slowdown in the eurozone. As a result, the zloty's basic scenario for the coming hours remains stable with prices close to current levels, even taking into account the persisting institutional risks.