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27.06.2008 - Currency Markets Weekly Brief

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Date: 2008-06-27 16:43

This was to be the week of interest rate statements. Both the Monetary Policy Council and the Federal Reserve were to determine whether rates would be increased or not. Starting with the Monetary Policy Council, expectations concerned a 25 basis point hike and the Council did not surprise investors with this decision by increasing rates to the level of 6%. This decision had a strong influence on the Polish currency which increased in value against both the Euro and the US Dollar during the week.  It has to be also highlighted that rates should continue to increase during the year even to the level of 6.75%, which is mainly determined by the volatile situation on the Polish labor market, together with the rocketing prices of energy.


On the other hand, the Federal Reserve kept rates unchanged at the level of 2%. This did not come as a surprise to investors, but by observing the reaction of the EURUSD market, which increased by around 180 pips in less than an hour, it could be concluded as a slight disappointment. Though, it has to be mentioned that the FED did underline the problem of growing inflation, which may be a strong signal that a hike could be expected in the near future. Bernakes statement was howevernot enough to determine the medium term plans of the EURUSD market, which still stands between the significant levels of 1.5284 and 1.5841. The breaking of any of the mentioned levels should also determine movements on the USDPLN and EURPLN markets in the medium term. Currently the target for the USDPLN market seems to be 2.06, whilst the target level for the EURPLN market is 3.30.


Omar Arnaout