Afternoon analysis 16.12.2015

, author:

Marcin Lipka

Stabilisation on the EUR/USD before historical meeting of the Federal Reserve. Data from Poland are without significance for the zloty. The Polish currency is slightly weaker after Tuesday's enforcement.

According to the market's expectations, the Federal Reserve will raise interest rates today. Rate of federal funds increases from the range 0-25 base case points, to 0.25-0.50%. This will be the first hike since 2006.

A path of the hikes drawn by the Federal Open Market Committee will have a significant meaning for the reactions of the financial markets. We can expect that the process of monetary policy tightening will be rather mild. Additionally, if the Fed indicates three hikes for the next year, the reaction of the financial markets can even be positive.

In the past weeks the representatives of the American central bank announced that the cycle of the monetary policy tightening, will be determined by the data. The Fed chairwoman, Janet Yellen, said that the central bank will now focus less on the situation on the labour market, and more on inflation. The Fed will observe, whether a pace of increase in prices is reaching the target on a level of 2%.

Stronger labour market

Initial reports regarding business cycle in the eurozone were close to the expectations. We are observing a stable development of situation in the majority of countries. The only negative factor is France. Its PMI index for the industrial sector decreased to the neutral level of 50, which separates developmend from a decrease in activity.

In the case of a report regarding the monetary union, we can see an increase in employment index. The companies employ at the fastest pace since Spring 2011.

This report shows that the actions undertaken by the European Central Bank in mid 2014, are starting to bring expected results. An increase in loan shares was already visible. Also a level of unemployment rate decreases, even though it still remains near its historical peaks. After yesterday's depreciation, the EUR/USD rate remains higher than 1.09 dollar.

The zloty waits for the Fed

The Polish labour market confirms its strength. November's data regarding the employment was better than expectations. Dynamics of salaries increased to 4% in year on year relation, against 3.3% the past month. Data regarding the salaries was also better. They increased by 1.2%, after a 1.1% growth in the past period. Expectations indicated a 1.1% increase.

On the other hand, data regarding the base case inflation was disappointing. A pace of increase in prices after excluding variables of prices of energy and food decreased to 0.2% against 0.3% the month before. The prognoses spoke about an increase by 0.3%. Data regarding inflation which was presented yesterday was also lower than expectations. Inflation was minus 0.6% against the predicted minus 0.5%.

On Thursday we will know the data regarding retail sale. According to expectations, sale increased by approximately 2%, after a 0.8% the month before. This report will show whether a strong labour market supports the consumption. If a pace of increase in sale remains on a low level, a chance for a stronger rebound of inflation due to an increasing demand, will be relatively small. Because of this, a pressure on further decreases in interest rates made by the Monetary Policy Council will increase. This scenario would be disadvantageous for the zloty.

After a clear enforcement on Tuesday, the zloty stabilises to the main currency pairs during the Wednesday's session. The franc depreciated below 4 PLN, and the euro is moving slightly above 4.30 PLN. A decision of the Federal Reserve regarding interest rates, and reaction of the wide market will be the most important factor for the PLN in the nearest perspective. The dovish announcement may signalize an enforcement of the zloty.

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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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