Afternoon analysis 11.04.2017

Another index has confirmed positive sentiments in the eurozone. The pound is in a slightly better condition after inflation data. The zloty’s value has been decreasing for the second consecutive day.

ZEW index

According to the ZEW, the economist sentiment index was better than expected in the case of both the eurozone and Germany. The eurozone’s index reached its highest level since December 2015 (26.3 points). As for Germany, the economist sentiment index reached its highest level since August 2015. Moreover, the economist situation in Germany received the best note since August 2011.

The EUR/USD went above 1.06. The dollar lost also against the yen, as well as against the pound. As a result, the dollar’s index was pushed to the level of approximately 100.8 points. The GBP/USD increased approximately 0.2%, which might have been caused by inflation data from the United Kingdom.

According to the Office for National Statistics (ONS), inflation was consistent with the consensus in the YOY interpretation (2.3%), but it was slightly better than expected in the MoM interpretation (0.4%). However, the PPI increased 17.9% YOY, which was its sixth consecutive growth above 10%, as well as its ninth consecutive growth in general.

The largest increase was quoted by oil prices (56.1% YOY) and metal prices (33.1% YOY). Food prices increased 24.4%. This data may increase the likelihood of the monetary tightening in the United Kingdom.

Zloty is weaker

The CPI data from Poland for March (provided by the Polish Central Statistical Office) was consistent with both the market consensus and the initial reading (positive 2% YOY and negative 0.1% MoM). Fuel prices increased 18.1% YOY and food prices increased 3.4% YOY. However, this data had a limited impact on the zloty.

The zloty has been weaker for a second consecutive day. The USD/PLN was near the 4.00 and the EUR/PLN went slightly above 4.24. The zloty was also weaker against the Hungarian forint and the PLN/HUF was pushed to approximately 74.4.

The zloty was not supported by a statement from Rafał Sura of the Monetary Policy Council. He claimed that if inflation remains below 2%, interest rates should remain unchanged until the end of the first quarter of 2018. This statement is consistent with the dovish tone from the MPC.

The sentiment towards the emerging market currencies has deteriorated, which is unfavorable for the zloty. However, the Polish currency might have been protected from larger declines by the weaker dollar.

Tomorrow’s events

At 10.30, we will know the data from the British labor market. The reading regarding an average wage for February, is expected to be its most crucial element. In January, this index increased 2.2%. The market consensus for February is at the same level. However, if the result is better, this may support the pound.

The data regarding the jobless claims for March may appear significant for the pound as well. Over the past three months, this index went down by a total of 73.2k people. The market consensus indicates a further decline, this time by 3k. This would wear-off the pound, but the data regarding salaries will most likely be more significant.

At 14.00, the Polish Central Statistical Office (GUS) will publish the data regarding baseline inflation for March. This index increased 0.3% YOY in February, which is one of the main reasons for the dovish attitude of the Monetary Policy Council. The market consensus is at the level of 0.5% YOY. If the reading is higher, this would strengthen the zloty. However, the chances for that happening are minor, especially taking into consideration that initial estimates regarding the CPI indicate a decrease from 2.2% to 2%.