Afternoon analysis 21.01.2015

, author:

Piotr Lonczak

ECB to buy 50 billion euro a month – according to Bloomberg. The zloty moved up against its major pairs without Swiss frank. The Polish currency was strengthened due solid reports and comments from central bank and government officials regarding SNB decision.

Investors in the markets are waiting for crucial decisions of the European Central Bank. This week the EUR/USD was in narrow corridor around 1.15. A slightly higher level than 11-year lows seen on last Friday.

Today, in the second part of the session, Bloomberg informed that the ECB Executive Board has proposed bond purchases of 50 billion euro a month trough 2016. The program is to be launched in March. Thus, the overall amount of purchases will be 1.1 trillion euro.

Earlier consensus was that the ECB will introduce quantitative easing in a scale of 550 billion euro through one year. Higher amount was to be conditioned on the future impact of introduced measures. Thus, the overall size of purchases is similar in both presented scenarios. As a result, the EUR/USD firstly had fallen, but briefly it returned to growth.

Recently the general outlook for the euro zone has improved. Yesterday the ECB informed, that credit conditions have improved in 2014. This showed, that the impact of bold actions undertaken by the ECB in the mid 2014 (record low interest rates, two TLTRO tenders) is getting more visible.

Now, the major catalyst for the monetary policy will be full QE. This factor will surely increase the power of earlier actions of the ECB. As a result, the improvement in the labor market and stronger GDP growth should occur. This will help the monetary authorities to fulfill their inflation goal of less 2 percent.

Solid property market

The US housing market is in a very good shape. Todays figures concerning housing starts and building permits reassured investors, that the condition of this part of the US economy is not deteriorated. 2014 was the best for the housing starts numbers since 2007.

Today's data don't alter the outlook for interest rates in the United States – the Federal Reserve will pursue its plan to rise interest rates in mid 2015. Given current situation, the dollar still holds its strong arguments for appreciation.

Data strengthened zloty

Recent reports showed, that the Polish economy is in quite good shape. Reports on Tuesday showed that the labor market is in good condition – the wage and employment growth was better than estimated. However, yesterday this factor didn't result in a stronger zloty.

Today the situation is different. Industrial production reading was clearly better than estimated – it rose 8.4 percent against expectations for around 5 percent increase. In addition, the PPI index dropped more than expected.

This was reflected in the increase of the zloty against its major pairs. The EUR/PLN dropped to 4.30, the USD/PLN to 3.70 and the GBP/PLN to 5.60. However, the Swiss frank remained strong, by staying above 4.30.

The zloty was helped by the National Bank of Poland comments that the currency level is not harming the economy and deflation impact is mild. In addition, the Polish authorities said that banking sector will allow frank denominated credit payments to exploit negative LIBOR. As a result, the impact of increase of the frank may be limited.

The zloty is under influence of broad market. The outcome of tomorrow's ECB decision will be a key driver for the Polish currency.

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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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