USA as front page news (Daily analysis 24.12.2018)

Many negative events across the pond - weekend reports from the Federal Reserve Chairman, Treasury Department's assurance of sufficient banking sector liquidity and partial closure of government institutions. The zloty remains stable during the Holiday trade.

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.

USA generate problems

Friday's session on the US markets ended with a strong decrease. Bloomberg calculated that S&P 500 fell by more than 17% in the current quarter, which was the worst quarterly result since the last three months of 2008. Then the core index of the New York Stock Exchange fell by 22%.

However, during the weekend, other pessimistic signals began to come in. Bloomberg and other media started to report that President Donald Trump was about to dismiss Jerome Powell, Federal Reserve's Chairman. Donald Trump has often expressed his dissatisfaction with the Fed's monetary policy, but it seemed to be more a political strategy than a desire to influence the independence of the Federal Reserve. President Trump has often boasted that during his term the shares increase, and when they fall, too restrictive monetary policy can be blamed. However, the willingness to dismiss the President and the attempt to actually block increases in interest rates is more of a systemic threat than a political struggle.

During the weekend, Steven Mnuchin, head of the US Treasury department, clearly denied media reports of Powell's dismissal. Alongside the positive news, negative news was also received, as Mnuchin held talks on Sunday with six heads of major commercial banks in the United States and obtained assurances from them about sufficient liquidity in the sector and the maintenance of credit for companies or households.

Generally, there have been no indications that the problems occurred with banks. However, the market is now beginning to wonder whether it is simply a too violent reaction to the recent falls in the market and an attempt to calm the situation, or whether the administration suspects much bigger problems in the financial system which is why Sunday's extraordinary conversation with representatives of commercial banks was held. Apart from the events related to the Fed, we are also dealing with the partial shutdown of government institutions. These are the result of a lack of agreement in the Congress on next year's budget. Currently, this problem seems relatively trivial and is the result of cross-party disputes over the financing of the construction of the wall on the border with Mexico.

How do investors react to all these reports? It is possible that in the case of the next series of drops on the US markets, we can see a strengthening of the dollar. Also, the rapid rebound should also be positive for the USD. Intermediate scenarios are negative signals for the dollar.

Limited changes

The zloty deteriorated slightly on Friday when the pessimism on the US markets was getting worse. Today, the zloty has pared a significant part of Friday's losses in relation to the dollar. On the other hand, the EUR/PLN pair remains stable in the range of 4.28-4.29. It seems that until the end of the session not much should change, especially as trading on the US markets ends at 7 p.m. CET.

It seems that the first days after holidays should not be particularly difficult for the zloty. The stabilisation of the zloty's quotations remains the baseline scenario and only very serious external turbulence could change this situation.