Afternoon analysis 25.11.2015

The euro hit the new lows before the key ECB meeting. The US reports support the case for tightening in December. The zloty's weakness. Only euro dropped against the Polish currency.

Before the ECB meeting in December new rumors on possible measure to be used have been released. Today Reuters said that the Frankfurt-based institutions will consider low rating assets to be purchased and may introduce two-fold negative deposit rates (more on the issue in the previous commentary).

As a result, the EUR/USD dropped below the 1.06 level and hit 1.0580. It was the lowest level since mid-April, when the major currency pair dropped as low as 1.0520.

Mario Draghi outlined the scenario of monetary easing in the eurozone in October. The ECB President pointed directly at the December meeting as the moment of possible expansion of the European QE.

The US reports

In Wednesday several US report were released. Earlier publication of reports was caused by holiday in the United States on Thursday.

Today's readings support the case for tightening by the Federal Reserve. As a result, the major currency pair was additionally pressured.

The reports from industry exceeded the expectations. Orders for durable goods increased 3 percent against the 1.6 percent that was expected. The reading excluding transportation equipment also was better than expectations (up 0.5 percent against 0.3 percent that was projected). The number of unemployment claims dropped to 260k from 272k.

However, the report on household spending was weaker than the forecast (up 0.1 percent against 0.3 percent expected), but the data on income was in line with the expectations (plus 0.4 percent). The PCE core inflation was unchanged from the prior month against the plus 0.2 percent that was forecast. However, the previous period data was revised up.

Zloty's weakness

In October the unemployment rate declined to 9.6 percent from 9.7 percent in the previous month. It was the lowest level since December 2008, when it was 9.5 percent. The reading was in line with the estimation from the labor ministry and the market consensus.

Today's report confirms strong expansion in the Polish labor market. However, other reports from the economy were rather mixed. Especially reports from industry were disappointing. In spite of weaker reports, the GDP growth in the third quarter was higher than expected (3.4 percent against 3.3 percent). The labor market report did not affect the zloty.

National Bank of Poland President Marek Belka said in an interview for the newspaper “Puls Biznesu”, that he sees no need for an additional interest rate cuts. The NBP chief said that change of the cost of the credit would not significantly affect credit action or the cost of government debt financing.

On Wednesday the zloty continued to decline. The zloty remained under pressure of aversion against the emerging market currencies caused by the heightened political risk (stemming from the tensions between Turkey and Russia). Currently, the probability of a stronger zloty is rather limited.