The dollar gained on inflation data. The euro declined after dovish comments from the ECB's Ewald Nowotny. Broad weakening of the zloty.
Recently the developments in the currency market have not complied with the comments from the major central banks. The EUR/USD moved to the highest level since the end of August in spite of hawkish remarks from the Federal Reserve and the dovish stance of the European Central Bank.
In the last few weeks, the Frankfurt-based institution officials have repeatedly confirmed a willingness to use additional measures to meet the central bank's inflation target. However, they have been rather cautious in pointing at specific terms. The easing scenario has been supported by the recent deterioration of data (especially poor reports coming from Germany).
In contrast, the Federal Reserve moved in a different direction. The Fed Chair Janet Yellen in late September said that her view is to raise rates in 2015. Her stance has been supported by the majority of policy makers who spoke in public.
In the case of the US, the reports from the economy were problematic. The latest data usually missed the forecasts, which supported the market's view that the Fed will eventually postpone the interest rate hike. The labor market was the largest disappointment. Moreover, the reports on industry and retail sales were poor. However, it changed today.
In the Morning, Ewald Nowotny from the European Central Bank said that the central bank should use additional tools to spur inflation growth. The comments made during the event in Warsaw hit the euro. The common currency posted a broad decline. It dropped from the highest level in more than month.
The market reaction was justified. Earlier, the ECB members also signaled similar moves. Given the situation, the recent increase of the euro was based on a wobble basis. Moreover, some commentators expect the ECB to act before the end of the year.
In the afternoon, the US reports supported the dollar. Although consumer inflation dropped on a monthly basis, the core price growth measure (which excludes volatile energy and food prices) increased 0.2 percent. All in all, the price growth was stronger than it was forecast. In addition, the labor market exceeded the expectations. The number of unemployment claims dropped to 255k. It was the lowest result for 42 years.
Broad weakness of the zloty
Today's developments in the currency market negatively affected the zloty. The Polish currency posted a broad decline against all its major pairs. The rising probability that the Fed will tighten this year is hurting emerging market currencies.
Moreover, the comments from the Monetary Policy Council were negative. Elzbieta Chojna-Duch doubts that the Polish economy will meet the 3.6 percent growth goal set by the government. This statement supported the belief that the economy is slowing down. Moreover, the zloty is under pressure of heightened political risk. Given the situation, the Polish currency will likely extend the recent decline.