Afternoon analysis 24.03.2017

American orders for durable goods increased in February, but their baseline index is disappointing. Will Brexit cost the United Kingdom 50 billion pounds? The zloty remains stable.

Limited impact on dollar

According to the American Census Bureau, orders for durable goods increased 1.7% MoM in February (0.5 percentage points above the consensus). Moreover, this index’s growth for January has been revised from 2% to 2.3%. However, the baseline index of orders for durable goods increased 0.4% MoM, which was worse than expected (0.5%).

The dollar’s reaction was relatively limited. Today, the market was dominated by a stronger euro. The EUR/USD increased up to 1.08. The dollar wasn’t supported by worse than expected PMI data (1 point below the consensus in the case of both industry and services). However, we need to keep in mind that the ISM is more significant for the American economy, hence a limited reaction on the dollar.

The European Committee Chairman, Jean-Claude Juncker, said that the United Kingdom will have to pay a 50 billion pound bill for Brexit. Juncker denied that this is a punishment, but the EU has to be effective in discouraging countries from leaving its structures. Despite the pound’s depreciation, the GBP/USD remains near 1.25. However, the euro strengthened approximately 0.5% against the pound.

Zloty remains relatively strong

Positive sentiment towards the euro has not deteriorated the positive sentiment towards the emerging market currencies, including the zloty. The Polish currency remains stable against the euro, the dollar and the franc. Due to the pound’s global wear-off, the zloty gained approximately 0.5% against the British currency. Moreover, the PLN/HUF reached its highest level since August 2016.

There will be no significant data regarding the Polish economy next week. Therefore, the zloty’s quotations will be determined by the market sentiment. This means that the zloty may lose value in the case of the dollar strengthening.

Next week’s events

After the vote regarding new American healthcare regulations, the market will most likely focus on the matter of lowering taxes in the USA. This should be an argument for the dollar’s appreciation. This week, the American currency wore-off due to positive data from the eurozone, among others. On Wednesday, we will know the final reading regarding the American GDP growth for the fourth quarter. Both, the initial and the second reading, indicated the growth at the level of 1.9% YOY. Currently, the market consensus is at the level of 2%. If the final reading is better than expected, the dollar may gain value.

On Friday, the British Office for National Statistics (ONS) will publish data regarding the GDP growth for the fourth quarter. The previous reading for this index was by 0.2 percentage points worse than expected. Currently, the market consensus is at the level of 2%. However, taking into consideration the recent events related to the British economy, this data may cause a relatively intense reaction on the pound.

Also on Friday, Eurostat will publish the initial data regarding the eurozone’s inflation for March. This index has been increasing recently, due to the increasing prices of raw materials. However, now that these prices have become stable, inflation growth should slow down. The market consensus is currently at the level of 1.8% YOY (2% YOY for February). If the reading is consistent with the consensus, this would be the first inflation decline in approximately one year. Nevertheless, such a result may also decrease the likelihood of monetary tightening from the ECB, which would wear-off the euro.