Afternoon analysis 12.09.2014

, author:

Piotr Lonczak

The euro didn't exploit quite good data that were shown today. Mario Draghi meets eurozone finance ministers for the first time since introducing the monetary stimulus. The dollar headed for its biggest weekly advance in almost a year.

Today's reports from the eurozone were better than projected. Both employment data and industrial production data were above expectations.

Industrial production in the monetary union rose 1 percent from the previous month after falling 0.3 percent in June. The figures exceeded projections of 0.6 percent growth. The production growth stood at 2.2 percent on yearly basis, up from 0.2 percent in the previous month and 1.2 percent expected. In addition, employment data also exceeded forecast. It rose 0.2 percent in the second quarter of 2014 quarter on quarter, more than 0.1 percent expected.

Draghi meets finance ministers

The European Central Bank President Mario Draghi will attend the meeting of eurozone finance ministers in Milan. It will be his first official meeting with European policymakers after the ECB introduced unprecedented measures to foster growth and fend off risk of deflation.

The ECB at its September meeting cut the refinancing rate and the deposit rate to 0.05 percent and minus 0.2 percent, respectively. In addition, it will launch mortgage backed securities and covered bonds purchases in October. In the meantime, the ECB will allot TLTRO on 18 September, that is aimed on supporting credit flow to the real economy.

Mario Draghi argued in his yesterday's speech that the monetary policy easing isn't sufficient to resolve problems of the European economy. Thus, the ECB President stressed the need for more reforms aimed on lowering the tax burden, improve the economic resilience and reducing the useless spending.

Today's meeting won't provide any breakthrough. Although if the talks result in some kind of plan sketch for investment plan, it may be supportive for the common currency.

The best sales in four months

The US retail sales was in line with expectations. Sales rose 0.6 percent form the previous month, more that 0.3 percent in the preceding month (revised from flat). The data excluding auto sales also met the expectations – sales rose 0.3 percent, the same pace as in the previous month.

Although the data was positive, the dollar had fallen against the euro after the report was shown, but later the US currency recouped its losses. The dollar headed for its biggest weekly gain in 10 months.

Next week is going to be interesting

Next week is stuffed with important events and key data. Given the growing speculation that the Federal Reserve will rise interest rate sooner than later, the key event will be the meeting of the Federal Open Market Committee on 16-17 September. The second most important event will be the TLTRO allotment, what may help to assess whether Mario Draghi is going to achieve the goal of reviving the credit flow to the real economy.

The zloty will be susceptible to incoming data due to the fact, that the Polish Monetary Policy Council will decide whether to cut interest rate based on incoming reports. The data on industrial production, employment and balance of payments will be shown in the next week. The base case scenario for the zloty is the MPC cuts rates by 25 basis points in October, although some MPC members have called for 50 bp. cut.

The employment growth in Poland stood at 0.5 percent quarter on quarter and 1.5 percent on yearly basis, the Eurostat informed. Although the data was quite good, it didn't support the Polish currency.

The zloty fell against its major pair in this week. The Polish currency has lost as much as 0.8 percent against the dollar. Given the easing of risk factors in the markets and expectations for interest rates cut in Poland, the zloty is going to remain stable at low levels.

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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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