Afternoon analysis 13.04.2017

Positive data from the American labor market helped the dollar to work-off its yesterday’s losses. The zloty remains stable after negative data regarding Poland’s current account balance for February.

Dollar works-off its losses

According to the American Labor Department, last week’s jobless claims index was at the level of 234k, which was better than expecte. The insured unemployed rate was consistent with the market consensus (2.028 million).

This data confirmed a positive condition of the American labor market. This was positive for the dollar, especially taking into consideration its wear-off caused by yesterday’s interview with President Donald Trump for The Wall Street Journal (read more in today’s Daily Analysis). The labor market report helped the American currency to work-off these losses.

According to the Bureau of Labor Statistics, the American PPI for March was at the level of 2.3% YOY and 1.6% YOY for the main PPI and baseline index, respectively. This data was was worse than the consensus, but better than the PPI readings from February. Therefore, its impact on the dollar had been relatively neutral.

The EUR/USD was pushed from 1.068 to 1.062. Moreover, the profitability of the American five-year treasury bonds increased from 1.75% to 1.8%. Due to improving sentiment towards the American currency, the USD/JPY increased from 109 to 109.3. As a result, the dollar’s index increased from 99.99 points to approximately 100.4 points.

Zloty remains stable

After yesterday’s interview with Donald Trump, the USD/PLN was pushed from 4.005 to 3.975. However, the dollar has been working-off its losses today and this pair increased to the level of 3.995 shortly before 15.00. Nevertheless, the zloty’s fluctuations against the other main currencies were limited.

Poland’s current account balance for February appeared to be worse than expected. After this index’s historically high balance in January (2.6 billion euros), the data for February indicated a 860 million euros deficit (estimates: positive 56 million euros). This result was mainly caused by a negative balance in the trade balance.

Increasing consumption has caused a significant growth of imported goods (811 million euros), while an increase in export was minor (61 million euros). The balance of transfers to the EU was at the level of 139.42 million euros, which indicates that investments in the forthcoming months may deteriorate. However, this data had no significant impact on the zloty.

Tomorrow’s events

The majority of stock markets are closed tomorrow. This includes the USA, Germany and Poland. Therefore, tomorrow’s trade will be limited. Tomorrow’s main event will be the reading regarding the American CPI for March. The Bureau of Labor Statistics (BLS)will publish this data at 14.30. Over the past few months, the CPI growth has been fueled by increasing prices of raw materials.

However, baseline inflation has been relatively stable within narrow range of 2.1%-2.3% (2.2% for February). The market consensus for the main CPI is a decrease from 2.7% to 2.6%. However, baseline index is expected to increase from 2.2% to 2.3%. It’s also worth emphasizing that the PCE data is more significant for the American market than the CPI. Nevertheless, the latter may give certain hints regarding the future PCE reading.

Also at 14.30, the BLS will publish the data regarding the American retail sales for March. In February, this index increased 0.1% MoM, which was its worst result since August. The market consensus for March indicates a 0.1% MoM decrease. However, the retail sales excluding cars is expected to increase 0.1%.

Taking into consideration yesterday’s interview with President Donald Trump, the dollar may be significantly vulnerable to this data. Trump said that he would prefer the dollar to be weaker and interest rates to be lower. However, higher readings may increase the likelihood of rate hikes, which would strengthen the dollar.