Afternoon analysis 09.03.2017

The European Central Bank didn’t change its monetary policy. However, the bank increased its expectations regarding the future inflation, as well as the future economic growth. The zloty is slightly weaker against the euro.

ECB policy

The European Central Bank decided not to change the level of interest rates and its deposit rates remained at the level of negative 0.4%. The ECB message indicated that interest rates will remain at their current, or lower level in the long-term. This emphasized the bank’s dovish attitude. The monthly value of the QE program also remained unchanged (80 billion euro until the end of March and 60 billion euro between April and December). Moreover, the QE program may last longer, if the Board of Directors assumes that a durable adjustment to inflation goal is not in sight.

Mario Draghi said that pressure on baseline inflation remains limited. He also announced that the QE will continue until the ECB would not notice an increase in baseline inflation. During the press conference, the EUR/USD had been increasing from 1.054 to 1.06. This might have been caused by revision of both inflation and the economic growth. The CPI is estimated to reach 1.7% in 2017, while its previous forecast was at the level of 1.3%. The GDP growth has been revised from 1.7% to 1.8%. Additionally, Draghi indicated that the ECB will cease from using any available tools, which increased the profitability of the German ten-year bonds and boosted the EUR/USD.

Zloty is weaker

The zloty is weaker due to a dovish message from the Monetary Policy Council. The EUR/PLN went above 4.32. Due to the globally stronger dollar, the USD/PLN went above 4.09. Tomorrow’s data from the USA may appear crucial for this pair. If the readings from the labor market are at least as positive as the ADP employment growth index from Wednesday, this would strengthen the dollar. Moreover, this would impact the growth of the profitability of the American bonds and cause the capital to escape from the emerging markets. If this happens, the zloty may not only wear-off against the dollar, but against the other currencies as well.

Tomorrow’s events

At 10.30, the Office for National Statistics will publish the British industrial production data for January. In December, this index increased 4.3% YoY, which was its best result in six years. Moreover, the industrial processing index was also definitely better than expected. Currently, the market consensus is at the level of 3.3% and 3.0% for the industrial production and the industrial processing, respectively. This result could strengthen the pound, which has been significantly overvalued recently (approximately 3% against the dollar). However, we need to keep in mind that the industrial production has been relatively volatile in the Month over Month interpretation.

At 14.30, the Bureau of Labor Statistic (BLS) will publish the data from the American labor market for February. This event may appear significant for the dollar’s evaluation, as well as for the global sentiment next week. The market will mainly focus on salaries and employment in the non-agricultural sector. Yesterday, the ADP presented an oprimistic report regarding the latter index (298k). Therefore, the BLS report may be as positive and increase the dollar. The market consensus is at the level of 190k.

The average hourly wage has been below estimates for three consecutive months (negative 0.1% MoM, positive 0.2% MoM and positive 0.1% MoM in November, December and January, respectively). Currently, the market consensus is at the level of 0.3% MoM. Therefore, there is a chance that tomorrow’s data will strengthen the dollar and push the EUR/USD below 1.05.