Powel gives no hints (Afternoon analysis 27.02.2018)

January's macroeconomic data from the US failed to meet expectations. The published transcript of Jerome Powell's statements did not give any indication of possible movements towards faster monetary tightening. The zloty's quotations remained relatively stable.

Dollar relatively strong but may depreciate

About 4.00 p.m., Jerome Powell (the new Federal Reserve President) will give his testimony to the US Congress. However, an hour and a half earlier the Fed published Powell's statements. As expected, around publication time an increase in volatility on the dollar was observed, which initially even increased, with the EUR/USD rate falling to 1.228.

Powell did not refer to the number of rate hikes this year. He highlighted the need for gradual increases and the necessity to avoid overheating the economy. Moreover, he stressed that inflation growth should be supported at the same time. He added that "despite recent fluctuations, economic conditions remain accommodative".

Some of the market's participants expected a more hawkish tone (especially concerning the suggestion of four increases), therefore, they may be somewhat disappointed, which may result in dollar weakening. Especially due to the fact that today there are no arguments to strengthen the American currency.

At 2.30 p.m., January's macroeconomic data from the US economy was published: regarding orders for durable goods and the balance account in goods trade. The 3.7% monthly decrease in orders was higher than expected (2.6%) and the highest since last year. The core index (excluding transport orders) also fell by 0.3%, although it was expected to increase by 0.4%, and it was also the first month-to-month decline since March 2017.

The were no positive signals in the balance account in goods trade. Foreign trade in goods had the highest deficit in January since mid-2008 (even during the last financial crisis). It reached 74.4 billion USD, almost 3 billion more than in the previous month and 2 billion USD more than market expectations.

Despite the negative information for the dollar, it increased around 3.00 p.m. The main currency pair's quotations were below 1.23. The probability of maintaining this trend seems to be limited, it is more likely that the reverse trend is possible in the afternoon.

No clear dollar appreciation would also have a good impact on the zloty. The changes in its value were limited today - the EUR/PLN was still close 4.17 and USD/PLN was between 3.38 and 3.39. Therefore, if worsening of the market sentiment and significant drops on the US market are not observed, the zloty may stabilize.

Tomorrow's preview

At 11.00 a.m., Eurostat will publish February's preliminary consumer inflation data (CPI). The market consensus indicates a decrease in its headline index from 1.3% per year to 1.2%, which may be mainly due to the high base effect of last year (2%). Much more important information may be the core reading (excluding energy, food, alcohol and tobacco prices). The median of market expectations indicates that this index will remain at 1%. However, the deviation of 0.1 percentage points from this value may cause a clear reaction in euro quotations.

Three and a half hours later, the Bureau of Economic Analysis (BEA) will present the third, final reading of GDP growth rate data for Q4 in the USA. The two previous readings showed an increase of 2.6% YOY in the last three months. The probability of significant changes is limited and the final data would have to differ by more than 0.2 percentage points in order to cause significant movements in the currency or equities market.