Afternoon analysis 04.04.2017

The data regarding the eurozone’s retail sales went above the consensus, but its impact on the euro was limited. The zloty is clearly weaker. Tomorrow’s press conference of the Monetary Policy Council may appear crucial for the Polish currency.

Euro is weaker

According to Eurostat, the eurozone’s retail sales rate for February was at the level of 1.8% YOY, which was better than expected (1.4%). This is the second consecutive month of this index’s growth. Moreover, the retail sales rate for the entire European Union increased even more (2.2% YOY).

The most rapid increase was quoted by non-food products (excluding fuel) and it was at the level of 2.4% YOY and 3.4% YOY for the eurozone and the EU, respectively. The largest increase in the retail sales rate was quoted in Slovenia (16.8%) and Luxembourg (12.9%). The largest decrease of this index was quoted in Belgium (negative 3.2%).

The data regarding retail sales indicate the consumption level, which is a significant element of the GDP. However, this reading had a limited impact on the euro, which has been weakened by the strengthening dollar and the yen. The EUR/USD was near 1.0650 and the USD/JPY was near 110.5.

Zloty is weak

Today, the zloty was very weak. This was mainly caused by the negative data regarding the industrial PMI, as well as by the strengthening of both the dollar and the yen. The zloty’s positive condition from the past few weeks was a result of the positive sentiment towards the emerging market currencies. Moreover, we need to keep in mind dovish signals that have been coming from the MPC, as well as lower inflation for March.

The EUR/PLN is within the narrow range of 4.25-4.26 and the USD/PLN is slightly below the 4.00. Moreover, the PLN/HUF was pushed from 73 to approximately 72.7. Tomorrow’s press conference from the MPC will be crucial for the zloty. If the Council repeats its announcement regarding the lack of rate hikes for 2018, this may wear-off the zloty.

Tomorrow’s events

At 20.00, the Federal Reserve will publish the minutes from its previous meeting. This will be the main event tomorrow. Before that, we will receive the second reading regarding the eurozone services PMI. According to the initial data, this index has reached the level of 56.5 points, which was mainly caused by a significant increase in both French and German services PMI. The market expects the same result for the second reading. Therefore, this reading’s impact on the euro will be limited.

At 10.30, we will know the British services PMI for March. This index’s results have been disappointing over the past two months. The market consensus is at the level of 53.5 points. The official Brexit initiation may have caused the market to focus more on macroeconomic data. Therefore, if the reading is significantly inconsistent with the consensus, this may cause a significant reaction on the pound.

At approximately 12.00, the Polish Monetary Policy Council will reveal its decision regarding interest rates. Both the market and the MPC chair, Andrzej Glapiński, don’t expect any changes to be made. However, the MPC press conference (at 16.00) may have a more significant impact on the zloty. This is taking into consideration the previous dovish signals from the MPC, as well as a slightly worse sentiment towards the zloty. If the comments regarding the lack of changes in interest rates in 2018 is repeated, the Polish currency may lose value.

At 14.15, the ADP will publish the data regarding employment in the American non-agricultural sector for March. This index increased by 298k in February, which was its largest growth in ten years. Currently, the market consensus is at the level of positive 187k. However, we need to keep in mind that this index is very volatile.

At 16.00, we will know the American services ISM. The market expects this index to be lower than in February (57.0 vs 57.6). If the result is inconsistent with the consensus, this may cause a reaction on the dollar. However, this impact will most likely be limited, because the market will focus on the FOMC minutes.