Afternoon analysis 08.03.2017

Philip Hammond forecasts that the British deficit will go below 3% for the first time in ten years. The dollar gained value due to the ADP report. The zloty remains stable.

Hammond to the rescue

The pound has been losing value before Phillip Hammond’s testimony in front of the British Parliament. The GBP/USD was pushed to the level of 1.2140. However, Hammond emphasized that immunity of the British economy is reflected in a strong labor market.

He also revised estimates regarding the economic growth. Hammond predicts the GDP growth for 2017 to be at the level of 2%, against the previous estimates at the level of 1.4%. A revision of the British deficit was positive as well. This index is expected to reach the level of 2.6% this year.

Due to Hammond’s statements, the GBP/USD bounced to the level of 1.22. However, this pair’s growth has been stopped by the positive American ADP data regarding employment in non-agricultural sector for February. This index increased 298k, against the estimated 108k. This significant increase was fuels by an intense growth in the goods production sector, as well as in small business.

Due to this data, the EUR/USD was pushed to approximately 1.053, but it managed to return to the level of 1.056 shortly before the opening of the New York stock exchange. However, the USD/JPY increased above 114.5. This caused the dollar’s index to boost above the level of 102 points.

Positive condition of the zloty

Due to the above mentioned ADP data, the EUR/USD increased above the 4.09 level. However, this pair has started going towards the 4.08 level, shortly before 15.00. Apart from this, the zloty increased against the forint to the level of 72. The Polish currency was relatively stable against the euro, the franc and the pound.

At 16.00, the Monetary Policy Council’s press conference will start. This may cause increased fluctuations on the zloty. However, positive ADP data may cause that the market will be dominated by the sentiment related to both the dollar and the American treasury bonds. Therefore, volatility may only be limited to the USD/PLN.

Tomorrow’s events

The European Central Bank will announce its decision regarding both the interest rates and the QE program. The ECB monetary policy has been very mild – deposit interest rates are at the level of negative 0.4% and the QE program is planned be continued until December at least. The past few months have brought an increase in CPI growth. However, baseline inflation has been stable for more than two years.

Therefore, it seems unlikely that the ECB will change its monetary policy. Taking into consideration the euro’s fluctuations due to the forthcoming presidential elections in France, volatility may increase during Mario Draghi’s press conference (at 14.30). However, the potential changes on the euro may be minor.

At 14.30, the American Labor Department will publish the data regarding weekly jobless claims. Last week’s report appeared to be much better than estimated (223k). Currently, the market consensus is at the level of 235k. Taking into consideration that this index has been near its forty-year minimum for approximately three months, this data should have a limited impact on the dollar.