Afternoon analysis 18.06.2015

, author:

Piotr Lonczak

The EUR/USD remained at its highest level in a month after the Federal Open Market Committee's dovish statement and poor reports from the US. Industrial production and retail sales did not support the zloty. The Polish currency increased only against the dollar.

Yesterday's Federal Open Market Committee's policy statement revealed a dovish stance of the central bank. The monetary authorities will decide on interest rate hikes based on the assessment of the economic situation. The key factors are the labor market and inflation growth.

The newest economic forecasts were rather balanced. The FOMC lowered the forecast for the GDP growth and lifted the projection for the unemployment rates (details in our morning commentary). In the case of interest rates forecast, the median expectation remained at the 0.625 percent level. However, currently seven policymakers expect no increase in interest rates or just one hike. In March, the number was only three.

As a result, the dollar dropped against the euro and other major currencies. Moreover, the US currency was hit by the latest inflation report. In May, the consumer price growth stood at 0.4 percent against the 0.5 percent that was projected. The core inflation increase was also weaker. It stood at 1.7 percent - a weaker result than the 1.8 percent that was forecast. The Fed stressed that the inflation and the labor market are key factors.

In turn, the labor market data did not manage to help. The number of unemployment claims dropped to 267k – clearly a lower result than was projected and less than the previous week. However, the data confirmed a solid expansion in the labor market, it was not sufficient to avert the influence of the dovish Fed statement.

Greece without a breakthrough

Today's Eurogroup meeting will not yield any breakthroughs. An agreement has been dismissed by both sides. Although the comments of lawmakers are very harsh, the German Chancellor Angela Merkel said an agreement is still possible. On the other hand, the International Monetary Fund Chief Christine Lagarde said the 30 June term is definitive for Greece. The nation is due to pay 1.6 billion euro to the IMF that day.

Moreover, the market sentiment was not supported by the information in Kathimerini newspaper. Rumours were that there is a chance for debt relief for Athens. The proposal was to be prepared by the European Central Bank and the European Commission. Still, the information was not confirmed in other sources.

As a result, the environment for risk assets was clearly adverse. There is not much time left for a debt deal. Simultaneously, the uncertainty is rising due to information noise.

Weaker zloty

Today's report from Poland disappointed again. Industrial production was weaker than the forecast. In May it increased by 2.8 percent - less than the 3.3 percent that was expected. Moreover, the retail sales report was also weaker. It rose 1.8 percent, roughly in line with the forecast. Still, a broader look at the Polish economy suggests that the second quarter will be weaker than the previous three-month period.

A dovish Fed stance should have supported risk assets and the zloty. Although a stronger risk appetite is apparent in the stock market, in the Polish zloty market a more important factor is the Greek crisis. Given the situation, it is unlikely for the zloty to get stronger while the Greek crisis is unsolved.

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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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