Afternoon analysis 20.11.2014

, author:

Piotr Lonczak

The dollar obtained solid arguments for gaining. The euro hit by a poor industry performance. The zloty stable after production data and minutes from the MPC. The pound remained on track as retail sales exceeded expectations.

The recent data from the United States gave the dollar solid arguments to continue its upward move. The most important reading was the inflation report. The price growth stood at 1.7 percent on a yearly basis, more than 1.6 percent anticipated and more than the same amount in the previous month.

Yesterday the minutes from the Federal Open Market Committee was released that revealed a rather hawkish outlook for the dollar (a wider view in our morning commentary). What is important here, the Federal Reserve kept its plan to rise rates in the mid of 2015. Thus, every data that reflects the inflation moving toward the Fed's goal, will push the dollar higher.

Another positive indicator for the dollar was today's report on unemployment claims. It stood at 291k – one thousand higher than in the previous week and more than 286 expected. Nevertheless, the number of new unemployed was below 300k for the 10th week in a row, what hasn't happened since 2000. Thus, the data although below expectations, reflects a strong momentum of the US labor market.

Conversely, today's data from the euro zone reflected a poor performance of the monetary union. The PMI reports were below expectations (a broader view in our morning commentary). Especially the German data disappointed as the manufacturing PMI report stood at 50, less than 51.5 expected. The result of 50 separates expansion from contraction. The data from China also didn't meet expectations, what reminded investors that the Asian countries also face significant problems.

The rising discrepancy between the US and the euro zone economic performance will perpetuate the rising trend of the EUR/USD as the Fed and the ECB move in opposite direction. The ECB president Mario Draghi said on Monday that purchases of government bonds are feasible.

The pound moved up

After minutes from the Bank of England that pointed at rising inflation risk and higher than expected price growth data the pound rose against the dollar and the euro. The move was maintained today as the data on retail sales exceeded expectations. It rose 4.3 percent on a yearly basis – more than 2.3 percent in the previous month and 3.8 percent anticipated.

The zloty gained

The recent data from Poland is rather modest. Yesterday's data form the labor market was at most average. Maybe the decent wages growth was a clearly positive (up 3.8 percent on a yearly basis).

Today it was similar. The industrial production growth was 1.6 percent – in line with expectations. However, the data from construction sector was weak as it fell 1 percent on a yearly basis after rising 5.6 percent in the previous month.

In the meantime, the National Bank of Poland released minutes from November's meeting of the Monetary Policy Council. The publication showed that there were proposals to cut rates by 100, 50 and 25 basis points (as we know they were rejected). The MPC members noticed that exceptionally low inflation is caused by abroad factors what remain beyond the scope of the MPC's influence. The MPC considered the November Inflation Report and despite lower forecast for inflation and GDP, it left rates unchanged.

The zloty posted some gains despite heightened risk aversion what is reflected by losses in the stock markets. The Polish currency exploited lower of interest rates cuts.

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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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