Afternoon analysis 09.10.2014

The solid US labor market data stopped the dollar. The zloty swayed due to the unexpected Fed move and MPC decision. The minister of finance speculated that MPC may refrain form additional cuts.

Today's data on new unemployed in the US was clearly above expectations. The number of social benefit claims was 287k from 288k (revised from 287k) a week earlier. It was lower than the projected 294k. The report confirmed the strength of US labor market.

The data was shown after the euphoric session on Wall Street, that was the best for the S&P500 index since October 2013. But given the solid data, the US stock market went down and the dollar rose.

Minutes from September Fed meeting was expected to provide some clues whether the central bank is going to drop its commitment to the phrase 'considerable time' - its pledge to keep rates on record low for an extended period after shutting down quantitative easing. But it was not the case – conversely central bankers deliberated on negative impact from the strong dollar on economy (a wider view in our morning commentary).

All in all, markets participants were surprised that the Fed didn't discuss when to raise the rates and focused on strong dollar consequences. So it was interpreted as the signal, that the Fed will postpone rates hikes in the future.

But the situation was complicated as today's very good data was published, that may restore the case for the interest rates hikes. As a result, the dollar rose and the Wall Street went down. Market reactions reflected the scale of confusion after central banks' moves.

The zloty swayed

From the Polish perspective the situation is similarly complicated. After unexpected rate cut yesterday the zloty rose due to risk appetite ignited by the Fed. However, the solid US data pushed the Polish currency lower.

Polish minister of finance sees a possibility that the October cut by the Monetary Policy Council was only one off. Janusz Cichoń said that although it is positive move, he won't be surprised if it was the end of cycle, according to PAP.

The zloty is very volatile as the monetary authorities provide inconsistent guides. Due to increased volatility it will be hard to predict short term moves until the market calms for a little.