Afternoon analysis 25.03.2016

, author:

Piotr Lonczak

The third revision of the US GDP growth is above expectations. The EUR/USD stabilized within a narrow range. The zloty was slightly higher against its major pairs.

The March Federal Reserve meeting suggested a move to a more dovish stance of the US central bank. The notion was based on the revised forecast for interest rate levels. The Fed's dot plot pointed at two hikes this year against the four that were expected in December’s report.

Fed President Janet Yellen said that the central bank wants to be certain that inflation and employment move as expected before tightening the policy any further. Yellen added that given the current level of interest rates, the central bank has more of a scope to address inflations that are too high than growth rates that are too low.

However, the situation has changed. The latest speeches of the central bank officials have been rather hawkish. Even the FOMC members usually considered as dovish have surprised with a more restrictive stance. On Thursday, St. Louis Fed President James Bullard said the central bank will move to the next hike. As a result, the market consensus moved to more hawkish expectations for the Fed's next move.

Another surprise

Yesterday, there was another surprise from the US. After weak reports on durable goods orders and existing home sales, the Atlanta Fed cut the forecast for the first quarter GDP growth.

Currently, the Fed expects the 1.4 percent GDP growth. Earlier, the forecast was for 1.9 percent GDP expansion. However, given the latest weak data, the revision could have been expected. Nevertheless, it has been surprising enough to weaken the dollar after few days of gains.

All in all, the dollar rebounded after the release of the revised data on the US GDP growth in the fourth quarter. The latest estimation showed that the US economy grew 1.4 percent (annualized), which is more than one percent expected. It was due to stronger consumption, which increased 2.4 percent against two percent in the previous estimate. Moreover, export dropped less than previously estimated. As a result, the dollar rebounded against the euro.

Zloty little higher

The major factors that are driving the zloty are the policy of the most important central banks. Although the ECB increased the stimulus and said it can do more, the Fed has been moving to a more hawkish stance after quite a dovish statement. As a result, the positive impact of the ECB actions has been limited by the Fed's stance.

In addition, the local factors will also affect the zloty. The unexpected decision by Hungary to cut interest rates hit the forint. In contrast, the Monetary Policy Council has said that the current level of interest rates is appropriate. Moreover, the Polish monetary authorities said the deflation in Poland does not negatively affect the economy. Given the situation, the basis scenario for the zloty is to stabilize with a tendency to increase.

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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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