Speeches by representatives of the Fed and the ECB (Afternoon analysis 22.02.2019)

The market is waiting for new impulses - attention may shift to the ECB. The relative zloty's condition may turn out to be fragile.

EUR/USD with no major changes

Friday was characterised by relatively small changes in the currency market. After significant drops in the previous days, both the Australian and New Zealand dollars were appreciating due to the optimism about exports to China. However, the main currency pair, i.e. the EUR/USD, remained practically unchanged and was quoted within a narrow fluctuation range of approx. 1.1310-1.1350 until the beginning of the New York trading session.

In the morning, the Ifo Institute published data on the sentiment among German entrepreneurs. It failed slightly (by 0.4 points), but its decline to 98.5 points indicates the lowest level in about 4 years. However, the impact on the euro quotations was very limited. The market has become used to weaker than expected data from Germany and they no longer have such a strong impact on currencies, shares or bonds, especially those surveyed - such as Ifo. The sentiment on the equity market is still positive - today, the DAX index (presenting the 30 largest companies on the Frankfurt exchange) reached its highest level since December 3rd last year, slightly exceeding 11,500 points around midday.

The lack of dollar appreciation and the still positive sentiment on the equity market supported the zloty and it did not change today. However, in the context of recent weeks, the Polish currency is in a weak condition. The EUR/PLN pair remains within the 4.33-4.34 range and the pound is close to the 5.00 PLN limit, although today the GBP/PLN exchange rate fell slightly to 4.97. However, the relative stability of the zloty seems quite fragile. Stronger upward trend on the zloty, especially combined with a worsening sentiment on the equity market (and recent growths on the European market seem to be slightly too fast for the current economic situation), may quickly increase supply pressure on the zloty.

Today, the market awaits a few more speeches of central bankers (Fed, ECB) - the last one starts at 7:30 p.m. Therefore, it cannot be ruled out that the volatility on the currency market will increase later in the day. However, the market's attention may shift from the Fed to the ECB. Due to the economic slowdown and lack of inflationary pressure, the intervention of the ECB representative should rather ease the message about monetary policy.

Next week's preview

On Tuesday and Wednesday, Jerome Powell, Fed's Chairman, will address the Committee on Banking, Housing and Urban Affairs at the US Senate. He will provide a half-yearly report on monetary policy. The Federal Reserve's path is quite clear, i.e. it takes a "wait-and-see" attitude towards monetary policy. Nevertheless, Powell's speech will be carefully analysed and the volatility of the dollar may increase. The final impact on the US currency should be rather limited.

The end of the week may be relevant to the currency market. On Thursday, the data on the US GDP growth rate in Q4 will be published. Although the data are already relatively "old", they may show the impact of the government shutdown as well as whether and to what extent the global economic slowdown affected the US economy. On Friday, data on PCE inflation in the USA in December will be published. These are also slightly delayed data, although this is the type of inflation taken into account in the Fed's projections, so their deviation from consensus may cause an increase in dollar volatility. However, the final impact of inflation data (assuming that the core index does not deviate by more than +/- 0.1 percentage points) should be limited. What is more important now is the fact how it will develop in the coming months.