On Tuesday, September the 18^th, the Federal Reserve System (Fed) will set the new level of interest rates in the US and this decision will certainly have a great impact on the markets. The currency market has already discounted the news that the Fed will cut interest rates by 25 basis points. Any other decision than that will cause a nervous reaction of investors. Also, the equities market seems to be discounting the future announcement. An interest rate cut will help companies since it will spur investments and decrease the cost of credit. On the other hand, the situation might have become so difficult that even a 50 points cut is possible. Such decision can cause the EURUSD to even break the 1.40 barrier. The USDPLN has been on a decline since the beginning of September and curerntly stands at 2.7270. The EURPLN is being quoted at 3.7820, also lower than two weeks ago. The strenghtening of the Polish currency is still possible with an interest rate cut in the US, which can make the PLN a more attractive investment to investors.

Along with the Fed’s interest rate decision, the Producers Price Index (PPI) in the US will be published. Core PPI is expected to remain at the same level, but the regular PPI is forecasted to be -0.2%, proving that these days inflation in the US is not a threat. The same day we will learn the CPI inflation level in Great Britain. During the night from Tuesday to Wednesday, the Bank of Japan will announce the level of interest rates in Japan. Despite the voices that rates in the second-largest economy in the world should increase, this time analysts expect no change from the current 0.50%.  Wednesday will also bring inflation data from the US and Canada with the CPI and Core CPI inflation reports being published. The US housing market sector will be represented by the Housing Starts and Building Permits report. Readings lower than the previous’s month are normal and only better than expected results will surprise the markets positively. The end of the week will bring speaches of central banks’ representatives, including Fed’s Chairman Ben Bernanke speaking on Thursday and European Central Bank’s President Jean-Claude Trichet on Friday.

This week will decide on the direction of the markets in the near future. Stock indices will react positively to an interest rate cut by the Fed, opposite to the American dollar, which decline even further. It seems that confidence is slowly back on the equities markets. All major US indices advanced last week with the Dow Jones Industrial Average breaking the 13,,400 and the S&P 500 the 1,480 levels. For the DJIA, an important resistance level remains at 13,493 while for the S&P500 at 1,495. Breaking those levels will push US indices up. The WIG20, the Polish blue-chip index, already attacked the 3,648 resistance level to retreat to 3,631. The Warsaw Stock Exchange’s major index will certainly react to the US indices’ moves so attacking that level this week is very probable.

Adam Narczewski