Afternoon analysis 03.04.2017

The eurozone’s inflation growth for February was at its highest level in five years. However, the unemployment rate reached its seven-year minimum. Nevertheless, disproportion between the particular eurozone’s countries remain significant.

Limited impact on euro

Eurostat informed that the eurozone’s PPI for February reached the level of 4.5% YOY. This was the eleventh consecutive month of this index’s growth, as well as its highest level in five years. This was mainly caused by an 11.4% YOY growth of the energy prices. Baseline inflation increased 2.1% YOY.

However, impact of the raw material prices on the PPI has been fading out. If we look at the Mont over Month interpretation, the energy prices for producers have increased by 1.1% MoM since January. Moreover, the PPI growth should decrease due to increasing base of this index in the forthcoming months.

The eurozone’s unemployment rate for February decreased from 9.6% in January, to 9.5%. However, the differences between the unemployment rate level in the particular eurozone countries remain large. The unemployment rate in Greece and Spain for February, was at the level of 23.1% and 18%, respectively. The unemployment rate in Germany for February, was at the level of 3.9%.

The EUR/USD remains within the range of 1.065 – 1.068. The final date regarding the eurozone’s industrial PMI for March, appeared to be consistent with this index’s initial data. This might have contributed to the euro’s stability. However, the pound continues to lose value, due to the weak industrial PMI data from the United Kingdom. The GBP/USD was pushed near the 1.25 level.

Zloty remains stable

Worse data regarding the industrial PMI from Poland has not been negative for the zloty’s evaluation. This was most likely due to the optimistic report regarding the perspectives for Polish companies. The zloty’s behavior today was not significantly different than the behavior of the other emerging market currencies.

The PLN/HUF remains stable at the level of approximately 73. The zloty should be determined by the general sentiment towards the emerging market currencies, as well as by the dollar’s behavior in the forthcoming days. Today we will know the American industrial ISM for March, on Wednesday the Federal Reserve will publish the minutes from its previous meeting and on Friday we will receive the data from the American labor market. A potential increase in the dollar’s value may cause the capital to leave the emerging markets, hence wear-off the zloty.

Tomorrow’s events

At 10.30, CIPS will publish the data regarding the British building PMI for March. This index had been decreasing between July and December. Currently, the market consensus is at the level of 52.6 points. This reading may cause an increased volatility on the pound, due to the recent official initiation of the Brexit process.

The euro was clearly weaker last week. This was because of dovish signals from the European Central Bank and negative inflation data. At 11.00, Eurostat will present the eurozone’s retail sales data for February. This index’s dynamics have decreased recently. Currently, the market consensus is at the level of 1.4% YOY. This reading may have a significant impact on the euro, notably if its worse than expected.

At 14.30, the Bureau of Economic Analysis (BEA) will publish the data regarding the American trade balance for February. In January, its deficit increased up to 48.5 billion dollars. This was mainly caused by a significant increase in import (5.3 billion dollars), as well as by a minor increase in export (1.1 billion dollars). Even though the market consensus is at the level of 44.9 billion dollars, a negative reading would wear-off the dollar’s appreciation trend.

Nevertheless, the dollar’s value has been mainly determined by expectations regarding rate hikes in the USA. Therefore, Friday’s data from the American labor market may appear crucial for the American currency, because they may impact the plans regarding rate hikes for this year.