Waiting for Fed (Daily analysis 19.12.2018)

19.12.2018 12:16 | Bartosz Grejner

The market awaits the evening publications of the Federal Reserve and the press conference with Jerome Powell. The dollar is still slightly weaker. The zloty receives support in the form of higher than expected growth in industrial production.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 8:00 p.m.: Statement of the Federal Reserve in the USA regarding monetary policy (estimates: interest rate increase by 0.25 percentage points).
  • 8:30 p.m.: Start of the press conference of Jerome Powell, Chairman of the Federal Reserve.

Favourable situation for the zloty

Wednesday began with a positive outlook for the zloty. Today, the Polish Central Statistical Office (GUS) published data on industrial production in Poland. In November, it increased by 4.7% per year. This is 0.9 percentage points more than estimated by economists. The GUS reported that inflation among producers (PPI) fell to 2.7% per year (0.5 percentage points below consensus). PPI data has a secondary impact on the zloty. On the other hand, the better than expected production data is well in line with the latest information on retail sales and wages, which increases the chances for a slightly better reading of the GDP growth pace for Q4 and a slightly higher wage pressure on inflation.

The slightly weaker dollar is also good for the Polish currency. Today, the zloty was somewhat stronger in relation to the basic currencies. The euro exchange rate fell to 4.28 PLN before midday, close to the bottom line of the last two weeks. In turn, the global weakening of the dollar led the USD/PLN pair to 3.75 level, i.e. around the lowest price since the second week of November. The zloty also appreciated in relation to the franc (approx. 3.78-3.79), as well as the pound (approx. 4.75-4.76). Oil was also responsible for the good condition of the zloty, as well as some other emerging countries' currencies.

These countries are, to a large extent, net importers of oil (imports exceed exports), and the raw material is most often accounted for in dollars. Oil prices (WTI, light crude) have been on a disastrous trend since the beginning of October. The value of one barrel fell to 46 USD, which is a drop of 31 USD in 2.5 months, i.e. about 40%. As a result, countries which are net importers of oil will see a positive effect on GDP. For Poland, after good economic data, this may mean an additional increase in the positive contribution of trade to GDP. This may translate into support for the zloty in the coming months.

This does not have to mean that the zloty will gradually strengthen. A lot depends on the market situation, which may change overnight. The dollar, as well as the main currency pair EUR/USD, has recently moved in a limited fluctuation range. The market is clearly waiting for an impulse that could pull quotes out of this stagnation.

What will Powell say?

Such an impulse could be this evening's events in the USA. The Federal Reserve (Fed) will publish a statement on monetary policy. Certainly, the Fed will raise interest rates by 0.25 percentage points. It is interesting how the increase will be reflected in the simultaneously published new macroeconomic projections (e.g. inflation and GDP) and in the press conference of Jerome Powell, the Chairman of the Federal Reserve.

Since Monday, the dollar has been under slight supply pressure, as the market is afraid of a more profound rise in interest rates, i.e. a rise in interest rates and a simultaneous decrease in the perspectives of the US economy, which may reduce the probability of more than one increase in interest rates next year. Concerns about global economic growth may lead to lower GDP growth projections in subsequent years. This, in turn, would reduce the risk of overheating of the economy and, consequently, the need for more than one rate increase next year.

It seems that keeping GDP projections and inflation unchanged could strengthen the dollar. Powell's press conference will also be important, especially in the context of pressure from the US President. Pointing out the independence of the Reserve can also be seen as a positive signal to the US currency. Powell is likely to avoid setting the number of next year's interest rate increases.

Moreover, the assessment of the global economy and its impact on the US will be important. Highlighting the negative impact of a global slowdown in growth in the US may weaken the dollar. However, large fluctuations in the currency market during publication and press conference should be expected, in particular on dollar-related pairs. The final impact on the dollar is hard to assess. However, if we look at the condition of the US economy in relation to the eurozone, the United Kingdom, Japan or China and the actions of the central banks there, we can expect that the dollar will return to a growth path after significant fluctuations have stopped. The zloty basket may also gradually weaken, although recent events (good macroeconomic data from the Polish economy, low oil prices) indicate that the Polish currency will become resistant to the (potential) global appreciation of the dollar.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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