Fed considers a 50 basis points cut in November with 60% probability. Hungarian central bank returns to monetary easing, a 25 basis points move fully expected. Similar decision in Czech Republic. Emerging market assets benefit from a weaker USD on FX.
Attack on 1.12
The US dollar is struggling again. First, there was a considerably disappointing consumer confidence index across the ocean, which barely hit 98.7 points against an expected 104 points. The doveish statement by a Fed member also did not help matters. As a result, the chance of a reduction in the cost of money in the US at the November meeting jumped to 60%, signalling a possible 50 basis points cut. Undoubtedly, this had a ricochet effect on the USD, which is again losing on the FX market. Interestingly, this is also happening to the euro, where after a weak series of data the market opened speculation as to stronger easing by the ECB. EUR/USD tested the 1.12 limit this morning, but this resistance held and there was a slight rebound downwards. There’s a struggle to resist the suspicion that the market got a bit carried away with expectations for another 50 points move, especially as it took many by surprise at the previous meeting. Will the Fed base its assessment on the consumer confidence index? It doesn’t seem likely, so the coming days with a flow of vital data may change the entire picture.
Cheaper Money in Hungary and the Czech Republic
Yesterday, after a short pause, the Hungarian central bank returned to rate cuts. The decision to cut rates by 25 basis points was expected by analysts. The decision-makers in Budapest had an argument for such a move in the inflation data, but the environment, including the ECB or Fed decisions, also favors this scenario. Analysts expect another 25-point cut this year, but it’s noteworthy that Hungary has the highest interest rate in Europe (6.5%). After yesterday’s decision, this is also the current level of rates in Romania. There was a lot of talk about the August break being a nod to the HUF, which suffered heavily after the rate cut in July. Today’s 25-points cut was not unexpected, so the Hungarian currency remains relatively stable. The Czech Bank also decided on a similar move, taking the rates to a level of 4.25%.
The Zloty benefited from the risk on
Despite everything, the unexpected weakness of the USD has a positive effect on emerging market assets. The expected stimulus package from China also contributed to the risk on. Yesterday’s session was successful both for our WIG20 stock exchange (up over 2%), and for our currency. The EUR/PLN exchange rate occasionally dropped below the level of 4.26, and USD/PLN tested the level of 3.80. Today the markets are much calmer. Both on the stock exchange floors and the FX market, there are signs of stabilization and very small movements. In the calendar, it’s worth noting the decision by the Swedish Bank, which wants to be in the pack of banks easing monetary policy and decided on a 25 points cut. Later hours will not have many significant releases, except for a few values from the American real estate market.
Author: Krzysztof Pawlak, currency analyst at Walutomat.pl
Source: https://managerplus.pl/60-szans-na-ciecie-fed-o-50-pb-w-listopadzie-50416
