Afternoon analysis 27.02.2015

, author:

Piotr Lonczak

The US GDP growth above estimates. German parliament agreed to help Greece. The zloty didn't exploit better than projected GDP numbers.

The dollar has been supported by recent reports. The GDP growth in the US was better than estimated – it stood at 2.2 percent, a higher result than 2 percent in the previous estimate and more than 2.1 percent projected.

After figures were released, the EUR/USD dropped lower. The pair dropped briefly as low as 1.1176 – the lowest level since January 26.

The EUR/USD drop has been spurred yesterday after inflation report from the US. The price growth was generally in line with expectations, but the core inflation exceeded forecast. The release was shown after hawkish comments from St. Louis Fed president James Bullard.

Policymaker is willing to remove “patience” from the Federal Open Market Committee statement to allow the central bank increase rates in summer. Moreover, John Williams from Fed – a close associate of Fed president Janet Yellen – sound also hawkish (more about recent comments from Fed members in our previous comments).

However, the data concerning industry expansion was not as supportive for the dollar. The Chicago PMI index dropped to 45.8 form 59.4 in the preceding month. A poor result was explained by the severe winter that limited business activity. In turn, pending home sales index was quite good (after positive reports on house prices and home sales). Moreover, consumer sentiment improved.

Recently, the dollar has obtained more argument to rise before March when the European Central Bank launches full quantitative easing. Currently, it is very hard to find any supportive factors for the euro. As a result, the EUR/USD is posed to drop further.

Germany backs bailout

Bundestag agreed to extend Greek bailout. The voting has shown a broad support for continuing austerity policy in the euro zone – 542 policymakers voted for and only 32 voted against.

However, 13 lawmakers from ruling CDU/CSU coalition voted against. This is a warning, that if Syriza's government seeks more dilution of current bailout term, the German government may be less eager to accept any concessions. As a result, next negotiations will be much harder.

Zloty pressured

The zloty posted losses against all its major currencies except the euro for a second day. The Polish currency didn't manage to exploit a better than expected GDP growth. The CSO said that the economy expansion stood at 3.1 percent – more than 3 percent in the first estimate.

Today's reports haven't altered the overall view on the Polish economy. As a result, the 25 basis points cut scenario on the Monetary Policy Meeting next week is still valid.

To sum up, a weak euro, the uncertainty over Greece fulfilling its bailout obligations and the Ukrainian crisis create unfavorable environment for risk assets. Impact of this situation has been reflected not only in the zloty market, but also in the case of Czech koruna and Hungarian forint. As a result, the likelihood for a significant zloty appreciation before MPC meeting is rather low.

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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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