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Weaker franc and pound after the decisions of central banks

Weaker franc and pound after the decisions of central banks

created OANDA TMS BrokersJune 21 2024

Thursday brought a mixed session on Wall Street. This time the Dow Jones did better, gaining 0,8%. Both the Nasdaq Composite (-0,8%) and the broad index closed the day below the mark SP500 (-0,3%), which, despite the loss, set a new historical record by breaking the level of 5500 points at the beginning of trading. The sentiment slightly deteriorated for technology companies. Data from the USA (building permits, labor market data) indicated that the American economy is weakening. The yield on US government bonds decreased and the dollar appreciated.

The Bank of England kept interest rates unchanged, as did Norges Bank. He decided to reduce the cost of money for the second time SNB. We received a package of data from Poland which indicated a decline in industrial production and a slowdown in the pace of PPI deflation. In turn, wages recorded an increase.

The GBP/USD pair is testing local lows

The Bank of England (BoE) left the interest rate unchanged at 5,25% yesterday. It said the decision not to ease was "precisely balanced" for some of the nine members of the Monetary Policy Committee (MPC). 7 people voted for no changes, and only 2 for a reduction, which was as expected. The pound lost its value. The tone of the statement was slightly "dovish". The implied probability of a cut in August increased from 30 to 60 percent. GBP / USD exchange rate fell towards 1,2650 while testing local lows.

Most policymakers were divided on the significance of recent data, which showed surprisingly strong inflation in the services sector. The minutes of the BoE meeting said some members believed that the latest data had not made much of a difference to the disinflationary trajectory the economy was on. It can be concluded that some British central bank officials are increasingly convinced that the institution may lower interest rates in the near future. However, there are still perceived risks related to persistent domestic price pressure in the services sector, despite headline inflation falling to the BoE target of 2%. in May.

The Swiss Bank will intervene if necessary

The SNB reduced the main interest rate by 25 basis points from 1,5 percent up to 1,25%. This scenario was taken into account by the market. The bank expressed its readiness to intervene in the currency market if necessary. It added that the institution will adjust monetary policy, if necessary, to ensure that inflation remains within a range consistent with price stability over the medium term. CHF is weakening.

Inflation in Switzerland is currently driven primarily by higher prices for domestic services. The SNB forecasts that in 2024 CPI will amount to 1,3%. (previously 1,4%) and in the following years it will reach 1,1%. (2025) and 1,0 percent (2026). This means that the bank expects lower inflation compared to previous predictions. CHF lost its value. The EUR/CHF rate increased to 0,9570. However, the currency pair has experienced significant declines since the end of May and there is quite a lot of room for recovery.

Decline in industrial production in Poland

Yesterday we received a data package from the USA. The number of new benefit applications dropped from 243. up to 238 thousand with a forecast of 235 thousand A moderate upward trend has been noticeable in the weekly data for some time. In turn, the current account balance was -USD 237,6 billion, while the consensus assumed USD 207 billion. In addition, real estate market numbers came to light. The number of building permits (1386 thousand) turned out to be lower than both the previous value and forecasts (1450 thousand). Data on house construction starts also turned out to be weaker than forecasts and the April result (1277). Volatility in the dollar was negligible. The EUR/USD rate at the end of the day decreased towards 1,07.

In turn, Thursday's data from Poland indicated a decline in industrial production by 1,7%. on a year-to-year basis. In April there was an increase of as much as 7,8%. y/y. High variability in readings includes, among others: the effect of fewer working days (two long weekends in May). The average salary in the enterprise sector increased by 11,4%. on a year-to-year basis. Real wages gained 8,7 percent. The Producer Price Index (PPI) was -7%. y/y, which means a decline in deflationary dynamics. In April, prices fell at a rate of 8,5%.. Month-on-month in May, prices decreased by 0,3%. The zloty lost slightly against the euro and the dollar yesterday. The EUR/PLN exchange rate is slightly above 4,33 and USD/PLN has exceeded 4,05.

Today, attention will be focused on preliminary PMI readings for Europe and the USA.

Source: Łukasz Zembik, OANDA TMS Brokers

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