Afternoon analysis 31.03.2015

The dollar increased in spite of mixed economic reports. The euro dropped as the inflation growth and unemployment rate showed no breakthrough in the monetary union. Weakness of the euro was exploited by the zloty, but the Polish currency declined against its other major pairs.

In recent weeks, the data concerning the eurozone economy has been rather positive. However, today, the euro has not obtained any support from the macroeconomic figures as the unemployment rate and inflation revealed poor economic landscape.

In March, the consumer price growth stood at minus 0.1 percent – according to the Eurostat flash estimates – a result in line with expectations. The inflation rate stood at minus 0.3 percent in the previous month. Although the deflation rate is getting smaller, the overall advancement in this area is still too small to allow any improvement of the eurozone economy assessment.

Moreover, the unemployment rate has disappointed – it increased to 11.3 percent from 11.2 percent, which was reported in the previous month – a result below the forecast. Moreover, the data concerning the preceding months has been revised up to 11.4 percent.

Figures on the unemployment rate show that discrepancy among the eurozone countries is still very strong. On one hand, there is Germany with unemployment dropping to 6.4 percent – the lowest level since the country's reunion. On the other hand, we have Greece and Spain with unemployment rates above 20 percent. Today, it is very difficult to point any premises that the situation will change significantly.

Solid reports from the US

Today's reports concerning the US economy were mixed, but they haven’t affected the dollar negatively. The S&P / Case-Shiller index – a measure of house prices in the US metropolises – stood at 4.6 percent in January – the highest level since September 2014, this suggests an ongoing expansion of this sector.

However, the data on the Chicago PMI index were less enthusiastic. The measure of expansion in the Chicago region increased to 46.3 from 45.8 in the previous month – a result below expectations. The index plunged last month below 50 – a level that separates expansion from contraction – as weather conditions deteriorated due to the severe winter.

A wider look at the US economy suggests that the first quarter of 2015 was rather weak. The data on consumption – household spending and retail sales – pointed at the drop in the consumption that adds up to about 70 percent of the US economy. Moreover, the figures concerning the industry also disappoint.

Given the recent data on consumption, today's report on Conference Board consumer sentiment is a signal that the situation may improve. The index increased to 101.3 from 98.8 in the previous month – a result above expectations and the highest level since 2007.

The dollar was affected by mixed reports that suggest slower GDP growth. The Federal Reserve signaled that it may defer interest rate hikes and the pace of credit cost growth will be modest. However, the rates will increase this year, what puts the dollar in the position to continue its appreciation against the euro as the European Central Bank is pursuing its QE.

The zloty increased only against the euro

As a result, the sentiment toward risk assets has been deteriorated. Thus, the zloty dropped against all its major pairs in spite of the euro. However, this situation is rather transitory and the zloty will rather return to gains when Greece will agree to the bailout conditions. In the long term, the zloty is in a position to extend gains – the EUR/PLN may drop as low as 4 zloty – if the broad market sentiment improves.