Before us incredibly intense week on financial markets. Wednesday’s Fed decision is widely anticipated and of its overtones will also depend situation on PLN (Zloty). An increase in US interest rates is basically certain, but it does not automatically mean the strengthening of the dollar.
In view of Wednesday’s Fed decision, in principle, everything else recedes into the background. US interest rates are to be raised for the first time this year and only the second time since the financial crisis at the end of the previous decade. Fed raised them before a year ago, and although initially indicated even 3-4 increases in the current year, the turmoil in the markets and the lack of inflationary pressures caused that interest has not yet been changed.
Now, however, it would have to come to some market cataclysm that such a decision on Wednesday was not undertaken – the increase was communicated by the representatives of the FOMC for months as US data support such a move. However, the mere raising of interest rates does not necessarily mean a further strengthening of the dollar, which has had several weeks of increases. On the contrary, in our opinion, only an increase in interest rates will result in a probable profit taking.
For dollar to strengthened further needed is so called ” hawkish increase”, what means signaling more aggressive raising rates next year. This signal can come from several sources. Along with the decision on the interest rates is published press release and after the meeting we have public statement of the head of the Bank ,later published are minutes. The question, however, whether at much higher bond yields and a stronger dollar than few weeks ago, Fed will want to send such a signal. If not, PLN will stand a chance for a successful end of the year.
The sell-off in the global bond market is in fact continuing and wasn’t stopped by last week’s ECB meeting, which was generally well received, despite the limitations of scale of asset purchases by the Bank. Prices of European bonds rose temporarily, but it was not lasting movement, US securities are systematically cheaper and you can see it on the Polish market, where the thaw after the decision of S&P ended on Wednesday. Since that time, the difference compared with the German profitability increases again, limiting the space for declines in the pair EURPLN. Monday’s calendar promises to be quite calm – final data on inflation Polish will have no impact on the zloty. About 9:30 euro costs 4.4523 zloty dollar 4.2156 zloty gold franc 4.1414, while the pound 5.3106 zloty.
dr Przemyslaw Kwiecien