Afternoon analysis 30.03.2015

, author:

Piotr Lonczak

US households reluctant to spend money on consumption. The EUR/USD dropped despite poor reports from the US economy. After hawkish comments from the Monetary Policy Council, the zloty posted significant gains.

Greece still has not reached an agreement with its international creditors. The propositions outlined by the Greek prime minister Alexis Tsipras has been negatively assessed by the country's counterparts. As a result, the final resolution for Greek standoff has again been deferred (a wider view on the issue in our morning commentary).

Given the situation, the EUR/USD was negatively affected after a neutral session on Friday. Nevertheless, the uncertainty concerning the future of Greece has limited impact in the broad market as major global indexes increased on Monday. The influence of the standoff has been limited to the Greek financial market where stocks and bonds were pressured.

The scenario that Greece will go bankrupt is still possible. However, our base view is the country finally meeting the expectations of the international creditors as both sides would have to incur unpredictable losses if the negative scenario is fulfilled. Nevertheless, until the final agreement is reached, this factor will weigh negatively in the markets of risk assets.

Americans don't spend

The reports concerning consumption spending in the United States show that households are reluctant to buy goods. In February, spending increased by 0.1 per cent – clearly a weaker result than the anticipated 0.3 per cent. In the predicting period spending dropped 0.3 per cent.

Moreover, the inflation adjusted numbers also missed expectations. Spending growth that takes into account changes in prices stood at minus 0.1 per cent after rising 0.2 per cent last month. It was the first drop in a year.

Other reports concerning consumer spending – retail sales numbers – posted three declines in a row. A similar situation is somewhat surprising – today's report showed also that income rose 0.4 per cent. In addition, the labor market situation is the best in years.

The current situation may result in slower GDP growth in the first quarter of 2015 due to the fact that consumer spending adds up to about 70 per cent of the US economy.

The dollar has not been negatively affected by this situation – the US currency posted gains against all major pairs. The PCE inflation report – a release that is very important to the Federal Reserve – was in line with expectations, thus it did not impact the market. Within the week some major reports from the US economy are scheduled, that may impact the dollar.

Stronger zloty

The zloty launched the week in good shape. The Polish currency posted gains against the euro and the pound. The USD/PLN was stable in spite of significant dollar gains in the broad market.

The zloty was fueled by somewhat hawkish comments from Andrzej Bratkowski from the Monetary Policy Council, who said that a stronger zloty is not a reason for interest rate cuts. The policymaker is usually rather dovish. Bratkowski outlined a positive scenario for the Polish economy by saying that the GDP growth may climb to 4.6-4.8 per cent in 2016.

The positive sentiment toward risk assets is supporting the zloty. If the situation holds, the EUR/PLN may drop to 4.00 zloty in the short term.

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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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