Afternoon analysis 30.03.2017

German inflation for March is by 0.6 percentage points lower than it was in February. Positive economic data from the USA supports the dollar. The positive sentiment towards the emerging market currencies continues and supports the zloty’s stabilization.

German inflation

According to Destatis, the German CPI for March reached the level of 1.6% YOY, which was by 0.2 percentage points below expectations and by 0.6 percentage points below its result for February. The average growth of service prices was at the level of 0.7% YOY, whereas the growth for good prices was at the level of 2.5% YOY.

We have indicated that German inflation may be below the consensus. This may reduce the likelihood of a more rapid monetary tightening in the eurozone, hence the wear-off of the euro.

Positive American GDP growth

According to the Bureau of Economic Analyses (BEA), the GDP growth for the fourth quarter was better than expected (2.1% vs 2%). However, weekly jobless claims appeared to be 10k higher than expected (258k). The rate of insured unemployed people increased 65k.

The dollar’s reaction was relatively positive. The EUR/USD was pushed to the level of 1.072 and the USD/JPY increased to the 111.4 level. As a result, the dollar’s index went up to the level of 100 points. Taking into consideration the euro’s weakness the level of 1.07 on the EUR/USD may be tested today.

Zloty remains strong

The zloty’s positive streak continues. This has been supported by the positive sentiment towards the emerging market currencies. The EUR/PLN remains near its highest level since mid-November 2015. However, the stronger dollar may endanger the zloty’s positive condition. This is due to increasing profitability of the American bonds, which may cause the capital to leave the emerging markets.

Tomorrow’s events

At 10.30, the British Office for National Statistics will publish the final reading of the GDP growth for the fourth quarter. The initial reading was at the level of 2.2% YOY, whereas the second reading was at the level of 2% YOY. Currently, the market consensus is at the latter level. In addition to this data, we will know the reading regarding the current account for the fourth quarter. This index has been burdened with a deficit for many years. Currently, the market estimates a 16 billion pound deficit (25.5 billion pounds previously). Due to the official initiation of the Brexit process yesterday, this data may increase fluctuations on the pound.

At 11.00, Eurostat will publish the initial data regarding the eurozone’s CPI. This index has been increasing rapidly over the past few months, mainly due to an increase in raw material prices. However, this factor’s impact has been becoming less relevant and the market consensus is currently at the level of 1.8% YOY (2% YOY for February). Baseline inflation is expected to decrease as well (0.8% YOY vs 0.9% YOY). This would be yet another negative signal for the euro, which is weakened by the previous message from the European Central Bank.

At 14.00, the Polish Central Statistical Office will publish the CPI for March. This index has been increasing recently and the market consensus expects this growth to continue (2.6% YOY). This data may appear crucial for the zloty. If the reading is consistent with the consensus (or higher), this will confirm inflation’s upward trend and help to sustain the zloty’s appreciation.

At 14.30, the Bureau of Economic Analysis will publish the American PCE for February. This index is significant for the Federal Reserve’s inflation forecasts. Therefore, it has a significant impact on future interest rates. Between January 2016 and January 2017, the PCE had been moving within the range of 1.6% YOY-1.8% YOY. However, it managed to reach the 1.8% level only once (in October 2016). The market consensus is at the level of 1.7% YOY. If the result is inconsistent with the consensus, this may cause significant fluctuations on the dollar.