Afternoon analysis 15.12.2014

The euro resumed losses after dovish comments from the Austrian Central Bank president. Low inflation without impact on the zloty. The US industrial production surpassed expectations but without resulting in a stronger dollar. The rouble hit new lows despite intervention of the central bank.

Deliberation on the full quantitative easing approaches its final phase. At a press conference after announcement of interest rate decision the European Central Bank president Mario Draghi pointed at the first quarter of 2015 as an appropriate moment for assessing the need for additional stimulus and taking any actions. Additional stimulus is impliedly seen as the full quantitative easing – an asset purchases program that includes government bonds.

Earlier the idea of the QE was heavily criticized by the Bundesbank and its allies, but the situation apparently changed as the German central bank said in monthly bulletin that there is unanimity among Governing Council on the use of additional stimulus to meet ECB's goals. This suggest that the Bundesbank stance is softening as the outlook for the economy deteriorates.

Moreover, today's comment from the Austrian Central Bank president Ewald Nowotny increased the odds for the QE. Rate setter said that no actions from the ECB will amount to tightening of the monetary policy. He also added that he sees no additional room for interest rates cuts what shifts the focus to unorthodox measures.

Today's news resulted in a falling euro – the EUR/USD dropped from its two week high.

The dollar got support from economic data. The industrial production growth increased its pace to 1.3 percent on a monthly basis – more than 0.7 percent anticipated and up from 0.1 percent (revised from minus 0.1 percent) in the previous month. Industrial capacity utilization also exceeded the expectations. However, the New York Empire State index – the measure of economic activity in the region of New York – dropped to minus 3.6 against 12.1 expected.

Wednesday's Federal Reserve decision on the interest rates will be crucial for the dollar – thus the impact of today's data is limited as it doesn't alter the view for interest rates. A broader view on Fed's policy statement was presented in our morning commentary.

The rouble hit new lows

Oil price posted some gains in the first part of the today's session, but after noon this move faltered. The movement was only a correction of recent decline as the fundamentals underlying oil price didn't improve.

Today's information is that the United Arab Emirates sees no chance for change OPEC output quotas even if oil price declines to 40 dollars a barrel – according to UAE's energy minister cited by Bloomberg. This information added to pressure on oil price after the International Energy Agency cut projections for demand.

The Central Bank of Russia intervened in the market to support the rouble by selling 350 million dollar. The impact of this move was very brief and later the rouble extended losses against the euro and the dollar.

Low inflation without impact on the zloty

In November the inflation growth was minus 0.6 percent – less than minus 0.5 percent expected – the Central Statistical Office informed today. The inflation growth was the lowest since the transition began in 1989. Today's release had no significant impact on the zloty as the Monetary Policy Council is not willing to change interest rates. The zloty is under influence of broad market trends.

An important factor that stabilizes the Polish currency is improving condition of public finance. Ministry of finance said today that the deficit in November was only 52.1 percent of planed for whole 2014 – less than 95.9 percent according to earlier estimates. Given that, the deficit may drop below 3 percent GPD – the level expected by the European Commission.

Currently the zloty remains under influence of the broad market sentiment. However, when the sentiment improves, the Polish currency will resume to gain as the economic performance and public finance provide argument for appreciation.