The US economy recovered from a weak first quarter. However, the growth report missed the forecast. The Greek Prime Minister Alexis Tsipras seeks to restore power in the Syriza party. The zloty extended declines in the second part of the day.
The US GDP report in the second quarter missed the forecast. The economic growth stood at 2.3 percent annualized. The forecast was for a 2.5 percent increase. It the preceding three-month period the growth stood at 0.6 percent after revision from the minus 0.2 percent that was previously reported.
Today's release included revisions of the GDP data back in 2012. The GDP growth averaged 2.1 percent in the 2011-2014 period, less than the 2.4 percent that was previously estimated. Moreover, the GDP growth in 2013 has been the weakest since the recession hit in 2009. The pace of expansion stood at 1.5 percent against the 2.2 percent previously estimated.
However, in spite of a weaker GDP growth in the April-June period, the expansion was stronger than the growth in the first quarter. Mainly it was due to stronger consumption. Moreover, the 2.3 percent GDP growth is above the post-crisis average of 2.1 percent (based on new GDP estimates). As a result, today's release is a signal for the Federal Reserve that the economy remained at the expansion path.
Today's report has been released just after the Federal Reserve decided on rates on Wednesday. Yesterday, the Fed showed a somewhat hawkish statement, which revealed that the US central bank is pleased with the labor market situation. The second factor to be taken into account when the Fed will decide on rates will be the inflation rate (more on the last FOMC's statement in our previous commentary).
The other reports were in line with forecasts. The number of unemployment claims increased to 267k – a result that signals ongoing expansion in the labor market.
Tsipras seeks support
The Greek Prime Minister Alexis Tsipras struggles to fight internal opposition in his party. During the last two votes in the Greek parliament there was a rebellion in the Syriza party against the reforms expected by the international creditors. As a result, the Greek government chief is going to make a party summit in September to assess his position. The decision on the summit will be made by Syriza members on Sunday.
Greece is due to make a payment to the European Central Bank on 20 August. Thus, the nation has to secure money before this term. The current Greek government offered to meet most of the economic reforms demanded by the country's creditors. However, if the position of Alexis Tsipras erodes, the risk of a negative scenario for Greece will increase.
The German labor market missed the forecast. The number of unemployed increased from 9k to 2.799 million. The forecast was for a 5k decline. It was the biggest increase since May 2014. In contrast, the Spanish economy surprised. The GDP growth accelerated to 1 percent in the second quarter against the 0.9 percent in the preceding three-month period. All in all, it was the best result since 2007.
Initially, after the US GDP report was released, the markets were undecided on how to assess the data. Later however, the major currency pair resumed to decline. A sign that investors assessed the data as showing improvement in the economy. As a result, the likelihood of an interest rate hike in September increased.
A somewhat hawkish statement of the FOMC and the report that shows the expansion is getting pace signaled that the tightening in the US is more likely. Given the situation the emerging market currencies declined.
The zloty dropped against all its major pairs. The drop against the dollar was stronger than the decline against the euro. The tendency will likely hold in the nearest future.