Afternoon analysis 06.07.2017

The euro strengthened slightly today but the ECB’s minutes were without hawkish surprises. Worse than expected employment data weakened the dollar. The Polish currency was somewhat weaker, although it could be subject to more substantial changes tomorrow.

Dollar still under pressure

Today, the European Central Bank published the minutes on the last policy meeting of the Governing Council. After the publication, the euro gained slightly against the dollar – the EUR/USD moved higher (from 1.136 to 1.139) over the next 30 minutes. The ECB minutes showed that the Council was particularly satisfied and upbeat about the economic growth (hence the recent upward revision to its projections), however, the inflation pressure remains subdued.

The Governing Council added that the recent downward revision of its inflation projections concerned the main index and that projections for the core index without energy and food prices remained the same. It was also underlined that adverse scenarios for lower inflation became less likely, although a positive trend was yet to be seen and accommodative policy was still needed to drive inflation toward the 2% target level. It seems that the aforementioned slight strengthening of the euro was due to the Council stating that negative scenarios for the inflation were less likely and maintaining the core inflation projections remain unchanged.

At 2.15 p.m., the ADP published a report regarding employment in the private sector. It said that employment grew in June by 158k, while 185k was expected. The services sector was fully responsible for all of June’s increase, while in the goods-producing sector the increase by 6k in manufacturing was offset by a decrease in natural resources/mining by 4k and in construction by 2k. The dollar’s initial reaction was negative and the EUR/USD pair closed in on 1.14. The ADP data and the Department of Labor official data (published tomorrow) have diverged, hence a stronger reaction should be expected tomorrow.

Zloty was also waiting for the US labor market report

The Polish currency was slightly weaker today after yesterday evening’s gains. The EUR/PLN traded under 4.23 only this morning, although it went as high as 4.25 after midday. The zloty could have been weakened by a worse sentiment on the European stock markets, which main indexes lost approx. 1%. However, the ECB’s minutes, which positively addressed the economic growth in the euro area and US employment data that missed expectations, were also positive for the Polish currency which shouldn’t lose value.