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Afternoon analysis 10.04.2015

10 Apr 2015 18:13|Artur Wiszniewski

The dollar posted the fifth gaining session in a row against the euro. Poor data from the industry hit the pound as election looms. The zloty dropped against the US currency, but increased against the euro.

In spite of somewhat dovish minutes from the Federal Open Market Committee the dollar is not losing momentum as the US currency remained in good shape against the euro and the dollar. The Fed statement has diluted the outlook for the interest rate hikes in June (more on the issue in our previous commentaries).

Nevertheless, the US currency managed to extend gains against all major pairs. On Thursday, the dollar was fueled by the unemployment claims data – as the four week average dropped to the lowest level in fifteen years. Given the report, the expansion in the labor market looks very strong. Moreover, a hawkish Fed member pointed at June as an appropriate moment for the policy tightening.

Today, Jeffrey Lacker – the Richmond Fed president – said that June will be appropriate to raise rates, Moreover, the Fed member said that the outlook for the consumption is quite good and some deterioration in the export and housing market is not a big problem.

The EUR/USD posted its fifth drop in a row. The situation shows that in spite of weaker labor market data and a dovish Fed statement the dollar outlook is better than the euro's. The common currency is pressured by the weakness of the economy, the ECB quantitative easing and the anxiety concerning Greece.

Possible agreement

On Thursday, the Greek media informed that the nation has only six working days to present the final reform plan. It will allow the Eurogroup to decide on the disbursement of the aid on April 24. In the meantime, the Greek government paid its bill to the International Monetary Fund – a sign that the country is going to make some concessions.

The finance minister, Janis Varoufakis, in an interview with Bloomberg said that he believes in the final agreement. The policymaker added that the Greek government is not planning debt restructuring. When asked about the visit of the prime minister Alexis Tsipras in Moscow, he said that the Syriza government is not seeking an alternative to Brussels.

Pound dropped

The pound dropped as the reports from the industry missed the forecast. The British currency declined to the lowest level since June 2010 against the dollar.

Today's readings from the manufacturing sector revealed some deterioration in the economic landscape. The production growth stood at 0.1 percent – a reading below 0.3 percent that was projected. In the previous month it dropped 0.1 percent. The energy production growth stood at minus 3.8 percent and the construction output dropped 0.9 percent.

The weakness of the economic data have increased pressure on the British currency as the looming general election adds to uncertainty. The voting is scheduled for May 7. The polls give no clear view on the election outcome.

A stronger zloty

After a very weak Thursday, the zloty returned to gains. The Polish currency posted the largest gains against the euro, but the increase against the pound was also significant. The zloty managed to recoup the decline against the dollar.

Next week, the Monetary Policy Council meeting is scheduled. If the monetary authorities express some concerns over the zloty increase, the Polish currency may decline. However, a more likely scenario is that the MPC will remain neutral – thus the zloty will return to gains.

10 Apr 2015 18:13|Artur Wiszniewski

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Afternoon analysis 08.04.2015

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