Daily analysis 09.03.2015:
The US data and its impact on the future interest rate hikes. Rumours on SNB further deposit rate cut and another EUR/CHF peg at 1.10 level. The zloty remains stable both to the euro and franc. According to the NBP the core inflation is set to remain below 1% till 2017.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No major macro data which may affect the analysed currency pairs
The NFP impact.
The US economy added 295k jobs in February, whereas economists expected a reading around 240k. The data from two previous month were revised downwards by 18k, but it didn't spoil the overall positive picture. Additionally, on Friday it turned out that the unemployment in the US dropped to 5.5% with estimates around 5.6. The 5.5% level is pretty important due to the fact that the range 5.2-5.5 is regarded as a full employment by the Fed.
In the Labour Department data, there were two less optimistic readings. Firstly, the participation rate dropped from 62.9% to 62.8%. Secondly, wages were raised by 2.0% y/y in February while economists expected 2.2% hike.
Taking all figures into the account, the job's report was bullish, especially that there were fears that due to weather issues, the consensus might have not been met. The data not only pushed the EUR/USD below 1.0850, but it also impacted that expected moment of the first interest rate hike.
Before the Friday's data the odds for interest rate hike in June was 18% and until September it was 49%. A day later the numbers changed to 23% and 58% respectively. It is a significant difference, especially that only one set of data was published.
Rumours from Switzerland – new peg and interest rate cut?
During the weekend Schweiz am Sonntag newspaper, citing unidentified people close to the central bank's board, claimed that the SNB board may cut deposit rate further to minus 1.5%. It would probably push the LIBOR range from minus 1% to minus 2%.
Additionally, according to Schweiz am Sonntag the SNB board would like to see the EUR/CHF at 1.10. Currently the pair is traded around 1.07. If the monetary authorities manages to bring the EUR/CHF toward 1.10, it should push the CHF/PLN below 3.75.
We also cannot exclude that the most recent leaks to the press are done intentionally. Such reports increase the uncertainty in the bullish franc camp. Usually after some rumours, comes a real decision. Currently the most probable is another rate cut. If the SNB decreases the benchmark to minus 1.5%, it should push the franc significantly lower. If we combine both elements, it brings the favourable conditions for the people indebted in Swiss currency.
The foreign market in a few sentences
The upcoming days should be fairly calm on the EUR/USD. The most heavily traded currency pair is not expected to leave the 1.08-1.10 range, unless we get some hawkish comments from the doveish part of the FOMC.
A chance for a weaker franc
The US employment data didn't create significant changes, both on the Swiss franc and the euro. Only the USD/PLN rose to new multi-year heights after the EUR/USD slid to 11-year lows.
Today the central bank published March Inflation Report. According to the NBP economists, the core inflation is set to remain below 1% until 2017. It may mean that after stable rates in the rest of 2015, we would have to wait till the end of 2016 for any hikes.
Taking the rumours on future SNB decision (details in the foreign part) into the account, there is a chance that the CHF/PLN may drop markedly. If the SNB managed to bring EUR/CHF toward 1.10, it would result in a franc slide toward 3.75 PLN.
Incoming hours should not bring any major changes. The EUR/PLN will be probably be traded around 4.12-4.13, while the CHF/PLN is expected to be quoted around 3.85.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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