Afternoon analysis 08.09.2015

Surprisingly solid publication of revised GDP reading from the eurozone. John Williams does not confirm the previous calls for two interest hikes this year. The zloty is slightly stronger in the afternoon. The Swiss franc is closer to 3.85 with a chance for further depreciation.

Better GDP

Today's publication on revised GDP from the eurozone for Q2 was supposed to only confirm the previous fairly weak data from the first half of the year. The situation, however, turned out to be much better than expected. The growth was revised upwards both for the first quarter (from 0.4% to 0.5%) and for the second quarter (from 0.3% to 0.4%). It also pushed the Q2 y/y reading from 1.2% to 1.5%.

Private consumption and trade were two engines of the growth in the common currency area. The situation regarding investments still looks weak. The data, however, does not confirm pessimistic calls from the ECB expressed during the most recent conference.

The news may also improve the euro valuation despite being a signal for “risk on” trade which has been hurting the currency recently. This time the readings may be read as pushing back any QE increase and therefore suggesting that the slide on the EUR/USD was too nervous last Thursday.

The Fed's official last interview

At midnight US EST the blackout period regarding the Fed's comments began. But “The Wall Street Journal” managed to publish the interview with John Williams on monetary policy before the “no comment” period started.

The San Francisco Fed president, voting FOMC member and close to the views of chair Yellen tells the “WSJ” that he is optimistic regarding US economy despite that some drawbacks like low investments, stronger dollar, and external risks exist.

Williams didn't want to repeat his view presented in July when he was suggesting 2 interest rate hikes this year. He only reassured the overall Fed's stance on beginning the monetary tightening later this year. It should suggest that we will probably only see one hike by December.

The zloty takes advantage from better sentiment

The “risk on” sentiment on equities is pushing regional currencies, including the zloty, higher. The EUR/PLN is currently traded below the 4.23 mark. If solid gains on stocks remain till the end of the US session than the euro may fall another 1 zloty cent.

Also the prospects for CHF/PLN look much better. The Swiss currency continues its depreciation move and it is falling to around the 3.85 level. It is too early to call it a breakthrough move on the frank but levels around 3.80 are in target if a fairly solid sentiment remains in the following days.