The dollar dropped after weak reports and dovish comments from the Fed. The euro moved higher in spite of low inflation. The zloty gained in the second part of the session. The Polish currency stayed at the low level.
After the poor report on the GDP in the US, today's data also disappointed. Reports on the household situation showed that adverse tendencies are still valid.
The major issue is the data on household spending. It increased only 0.1 percent on a monthly basis. It was a lower result than the positive 0.2 percent that was expected. In contrast, the reports on income exceeded the forecast. It increased 0.4 percent against the 0.3 percent that was expected.
Today's reports showed that in spite of a strong labor market, (the number of unemployment claims was the lowest it has been in four decades) households are not willing to spend money. Given the situation, the inflation rate will not get support from the private consumer. The PCE inflation increased 0.1 percent on a monthly basis - in line with the forecast.
After the release, the dollar posted significant losses. The EUR/USD moved above 1.14 - which is the highest level since mid-October 2015.
Moreover, the Fed strengthened pressure on the dollar. Dallas Fed President Robert Kaplan, said he will support gradual interest rate hikes. His view is in line with the scenario presented by the Fed. Moreover, the situation in the futures market showed that the US monetary authorities will lift rates cautiously. Currently, the level of credit may increase in December, according to the futures market.
In contrast, the euro gained after very good reports on the economy. The GDP growth stood at 1.6 percent on a yearly basis. This was above the forecast. Moreover, the data on the unemployment rate surprised in a positive way. The unemployment rate in the eurozone countries is currently the lowest since the crisis.
The euro gained in spite of a poor inflation reading. However, the inflation rate was lower than expected, and an even more important piece of data was the reading on the GDP and the labor market.
The zloty gained
In the second part of the session the zloty moved higher. The Polish currency recouped its earlier losses. The zloty gained in spite of a negative sentiment in the broad market.
The zloty was not affected by the inflation data. According to the CSO, the inflation rate stood at negative 1.1 percent in spite of the negative 0.9 percent that was forecast. The report suggests that the inflation rate will not turn positive very soon. This factor may push the MPC to adjust its stance in the future.
In spite of today's gains, the zloty remains at the low level. Currently, the probability of a stronger zloty is rather limited.