Volatile market adds to investor anxiety
There seems to be no clear trend on the market recently. Investors worry about forthcoming elections but appreciate good fundamentals and privatization plans.
During the week the złoty was supported by the leading liberal opposition party, Civil Platform, promising prompt reforms and euro adoption. If such comments appear more often, markets may stop worrying about the general election and possible political instability and focus on strong economic growth. In the mean time investors' nerves remain strong-the złoty's strength, unlike that of the bonds, was not undermined by the Hungarian rating downgrade. However, the Polish currency was pulled down following the decline in bond prices caused by comments from MPC member, Halina Wasilewska Trenkner, who reminded us that this year rate cuts are unlikely. Markets, in fact, widely expected the central bank to ease its monetary policy in the second half of the year.
Now investors expect fresh economic data (inflation) and news about the timing of elections to clarify the market situation and set a new trend.
Despite very soft US trade data last week the greenback remained on its upward path on the international markets. The EUR/USD ended the week at 1.3080. Back on Friday, January 7, the dollar was strongly supported by the comments of the US Treasury Secretary John Snow, saying Bush's administration was determined to cut the US budget and trade deficit and sustain a strong dollar policy. Later, Snow said that the markets should set exchange rates-something many believe indicates the weakness of Snow's initial statements about the strong dollar policy.
Before the trade data was released the dollar was hurt when investors learnt of a German ZEW institute survey showing substantial progress in investor confidence. The greenback lost its ground even further when the trade data came in far behind expectations ($60 billion deficit) showing huge structural economic imbalances. The EUR/USD rate jumped immediately to 1.3290 but that was just enough for this week. On Thursday, the ECB decided to keep interest rates unchanged (and so did the Bank of England) but it was the comments of ECB governor Jean Claude Trichet and good economic data which triggered the dollar's recovery. Trichet called for more flexible foreign exchange regimes in Asia.
Now investors are focus on the upcoming G7 meeting in February, in London. Markets expect China to allow the yuan to be set more flexibly and eventually for it to appreciate. Other Asian countries may also face criticism for their conservative foreign exchange policy. Europe expects them to bear more of the burden of the dollar's weakness.
Krzysztof Rup, Warsaw Investment Group (WGI)
During the week the złoty was supported by the leading liberal opposition party, Civil Platform, promising prompt reforms and euro adoption. If such comments appear more often, markets may stop worrying about the general election and possible political instability and focus on strong economic growth. In the mean time investors' nerves remain strong-the złoty's strength, unlike that of the bonds, was not undermined by the Hungarian rating downgrade. However, the Polish currency was pulled down following the decline in bond prices caused by comments from MPC member, Halina Wasilewska Trenkner, who reminded us that this year rate cuts are unlikely. Markets, in fact, widely expected the central bank to ease its monetary policy in the second half of the year.
Now investors expect fresh economic data (inflation) and news about the timing of elections to clarify the market situation and set a new trend.
Despite very soft US trade data last week the greenback remained on its upward path on the international markets. The EUR/USD ended the week at 1.3080. Back on Friday, January 7, the dollar was strongly supported by the comments of the US Treasury Secretary John Snow, saying Bush's administration was determined to cut the US budget and trade deficit and sustain a strong dollar policy. Later, Snow said that the markets should set exchange rates-something many believe indicates the weakness of Snow's initial statements about the strong dollar policy.
Before the trade data was released the dollar was hurt when investors learnt of a German ZEW institute survey showing substantial progress in investor confidence. The greenback lost its ground even further when the trade data came in far behind expectations ($60 billion deficit) showing huge structural economic imbalances. The EUR/USD rate jumped immediately to 1.3290 but that was just enough for this week. On Thursday, the ECB decided to keep interest rates unchanged (and so did the Bank of England) but it was the comments of ECB governor Jean Claude Trichet and good economic data which triggered the dollar's recovery. Trichet called for more flexible foreign exchange regimes in Asia.
Now investors are focus on the upcoming G7 meeting in February, in London. Markets expect China to allow the yuan to be set more flexibly and eventually for it to appreciate. Other Asian countries may also face criticism for their conservative foreign exchange policy. Europe expects them to bear more of the burden of the dollar's weakness.
Krzysztof Rup, Warsaw Investment Group (WGI)
