Waiting for signals (Daily analysis 27.03.2018)

The dollar pared some of the morning losses, but the EUR/USD pair remained above the 1.2400 level. Speeches of three FOMC members had no significant impact on the overall Fed image. The zloty is supported by calming sentiment. The Polish currency is also stronger in relation to the forint.

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.

Better sentiment worsens dollar

The tension between Washington and Beijing has weakened and caused strong increases in the US indexes. During the European session, optimism is also visible and the S&P 500 futures contracts are to start the US session in the green. However, this environment is clearly negative for the dollar.

In the morning, the EUR/USD reached the 1.2480 limit, i.e. 100 pips above the opening levels at the beginning of the week. Why do the positive moods not support the US currency? It seems that emerging countries benefit more from better economic growth than the US. Therefore, the capital flows to those countries. Today, the Chinese yuan has been the strongest in relation to the dollar since August 2015.

The improved external situation has not resulted in noticeable acceleration of inflation processes in the US. This, in turn, prevents the Fed from tightening its monetary policy. Moreover, investors also do not believe that GDP growth in the US may remain above 2.0 in the long term.

Fed remains calm

In the evening and at night (CET time), three FOMC members had their speeches. However, neither William Dudley (the President of the New York Fed - always with voting rights) nor Randal Quarles (always with voting rights) focused on monetary policy, but rather on regulatory issues, consumer protection and the situation of less wealthy households.

Only Loretta Mester's speech at Princeton University raised the monetary policy issues. The Fed representative from Cleveland (with voting rights this year) was relatively neutral (although she is generally perceived as being relatively hawkish). She was positive about the GDP growth perspective for this and next year. She also highlighted a strong acceleration of investment (by 6%) last year.

Mester, on the other hand, was more cautious about inflation and the monetary policy's reaction to price processes. She suggested that after March, an acceleration of inflation can be observed, but it would be mainly a base effect (lower readings from spring and summer 2017). Therefore, Mester believes that reactions should be limited just as they were with the lower inflation last summer or higher inflation in early 2017. This may suggest that most members of the Fed will need at least a few months to modify their approach and suggest more increases even if we see actual acceleration of price growth rates. This sends a negative signal to the dollar.

Zloty supported

Improving global sentiment clearly supports most emerging country currencies. Colombian and Mexican pesos, the South Korean won and the South African rand appreciated by more than 1% in relation to the dollar. The zloty also appreciated and strengthened by 0.8%.

The Polish currency is paring some of the losses related to the mild Polish MPC attitude or surprisingly low inflation, also in relation to the forint. Last week, the monthly falls of the PLN/HUF pair reached 2%. Now, this loss has been reduced to 1.5%.

The limited macroeconomic calendar in the coming days should translate into strengthening the influence of external signals on the PLN valuation. If the trade conflict between the USA and China does not worsen and the situation on the global market remains at least neutral, the Polish currency should be relatively stable and it can even go up against the euro or the franc.