Afternoon analysis 11.05.2017

The British monetary policy didn’t change its course, but the pound has lost value. The dollar has gained value due to the positive data from the labor market. A slight correction on the zloty.

Bank of England has left interest rates unchanged

The Bank of England has left interest rates unchanged, just as the market expected (0.25%). Moreover, monthly corporate bonds purchase has remained at the level of 10 billion pounds and monthly government bonds purchase has remained at the level of 435 billion pounds. The Bank of England also decreased its forecasts regarding the GDP growth in 2017 (from 2% to 1.9%) and increased the estimated CPI growth (2.7%).

The BoE announced that a more rapid monetary tightening is possible, but this assumption is based on a potentially “soft” Brexit. Mark Carney, the BoE chairman, emphasized that the bank’s projections do not include the process of the UK leaving the European Union being chaotic.

Positive data from USA

According to the US Labor Department, the amount of weekly jobless claims was at the level of 236k, which was better than expected. Moreover, the amount of insured employed went below 1.918 million. The PPI for April was at the level of 2.5%, which was its best reading in approximately four years.

This caused a significant increase in the dollar’s value. The EUR/USD has gone down to 1.084, which pushed the dollar’s index up to the area of 99.7 points. The pound’s value decreased due to the message from the Bank of England. Investors most likely reacted negatively to the statement about a “soft” Brexit. Taking into consideration the strengthening dollar, the pound may continue to lose in the forthcoming hours.

Work-off on zloty

The zloty has been weaker since the morning. However, the Polish currency remains relatively strong. The CHF/PLN increased up to approximately 3.85. The zloty has also lost slightly against the dollar, euro and forint. However, the GBP/PLN went back below 5.00.

It seems unlikely that the above mentioned reaction is the beginning of a depreciation trend. The zloty quotations remain near their maximum. Moreover, the sentiment for both the eurozone and Poland remains positive.

Tomorrow’s events

At 14.00, the Polish Central Statistical Office (GUS) will publish the final data regarding the CPI for April. In February, this index achieved its highest level in more than four years (2.2% YOY). The initial estimates from the GUS regarding April indicated a result of 2%. Reduction of the CPI growth would be consistent with the global trend, which was caused by a slowdown in the growth of raw material prices. However, the baseline index is much more significant and this will be published on Monday. Taking into consideration that this will be the second reading, the reaction of the zloty is expected to be limited.

At 14.30, we will receive the data from the American economy, which is the CPI and retail sales for March. In February, the CPI was at its lowest level in approximately eighteen months (2% YOY) and retail sales index didn’t increase in the Month over Month interpretation for the first time since August 2016. Currently, the market consensus is at the level of 2% YOY and positive 0.5% MoM respectively.

At 16.00, we will receive the initial consumer trust index from the University of Michigan for May. Last month, this index decreased to 97 points. Even though this result was by 1.5 points lower than its thirteen-year record from January, it was 8 points higher than in April 2016. Currently, the market consensus is also at the level of 97 points. If the aforementioned data is positive (CPI, retail sales, consumer trust index), this would support the dollar’s appreciation trend.