Market awaits for signals (Afternoon analysis 07.02.2018)

07.02.2018 15:34|Marcin Lipka

The relative calm situation on the exchange market is observed, but the dollar is appreciating slightly. New macroeconomic projections of the European Commission are favourable for the eurozone and Poland. The MPC leaves interest rates unchanged. Before the Council's press conference, the EUR/USD pair was close to 4.16.

Slightly stronger dollar

Yesterday's increases on the US market and the relative optimism during today's session in Europe reduced the risk of sudden movements in the following hours. However, investors will remain cautious during the next hours and if there is a slightly deeper decline in the US, the risk of weakening emerging market currencies will increase significantly.

Taking into account the elements not explicitly related to the market, it is worth noting new macroeconomic projections for the eurozone. According to the European Commission, the single currency area is expected to increase by 2.3% this year, 0.2 percentage points faster than estimated in the autumn. The same revision rate applies to Germany - by 0.2 percentage points to 2.3%.

The EC raised the projection for Poland. Poland's GDP is expected to grow by 4.2% this year and by 3.8% next year. This is by 0.4 and 0.2 percentage points respectively higher than the autumn forecasts.

In a more detailed description of Poland, the Commission estimated that core inflation will exceed the 2.5% level in the back of 2019. This is more or less in line with the NBP's estimates from November (2.7% in 2019). Therefore, the economy is clearly growing slightly above potential, but if core inflation does not exceed 2.5%, or at least there are relatively clear forecasts of the rather rapid risk of breaching this level, the MPC will likely keep interest rates unchanged.

MPC conference and Bank of England

Today, the Monetary Policy Council (MPC) left interest rates at the level of 1.5%. At 4.00 p.m., MPC press conference will start after the two-day meeting. It is going to be rather dovish, especially due to the fact that during the last interview with President Glapiński for Dziennik Gazeta Prawna was raised the issue of leaving interest rates unchanged until mid-2019. It seems that this plan can also be supported by other Council representatives at the conference.

Tomorrow, the most important event will be the meeting of the Bank of England. No interest rate decisions are expected, but the relatively weak British economy (e.g. the recent decline in PMI indices) and the build-up of Brexit risks seem likely to limit the appetite for tightening monetary policy and the demand on the pound.


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