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Weak data from Germany (Daily analysis 20.03.2018)

20 Mar 2018 12:24|Marcin Lipka

Much worse than expected readings of the German ZEW index. A decreased inflationary pressure in the UK. The zloty remained under pressure. The EUR/PLN pair tested 4.23, the highest levels since November.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Limited changes

Yesterday, the euro was supported by Reuters' message about a possible increase in interest rates by the ECB in the middle of next year. This was not a surprise (the market evaluates such a move more or less), however, the early discussion about tightening monetary policy (the QE program has not expired yet) may be perceived as a relatively hawkish signal.

In the morning, the ZEW index was published. It presents the German economists' sentiment in their economies and in other countries. The index for Germany has dropped significantly (over 12 points) to 5.1 points, which is also the lowest value since October 2016.

Achim Wambach (the head of ZEW Institute), in his comment on the data, wrote that concerns about the trade conflict with the USA lead to the situation where the experts are more cautious about their forecasts. Taking into account the economic expectations of the 220 economists surveyed, the drop occurred not only in Germany. About a 20-point decrease was noted in the US and Italy compared to February.

It is hard to say to what extent the issue of trade disturbances will actually worsen economic growth. Perhaps German economists are more sensitive to external signals which translates into the strong revision of the indexes in comparison with the previous study (e.g. their pessimism after the Brexit result did not reflect reality). The EUR/USD pair after this data was under pressure and fell to the 1.23 boundary.

Lower inflationary pressure on the British Isles

The Office for National Statistics (ONS) published inflation data for February. It slightly failed the economists' estimates, both in core terms (2.4% vs. 2.5% year-on-year) and in general (2.7% vs. 2.8% year-on-year). For services, the price growth pace decreased from 2.8% to 2.4%, which may indicate a clearer reduction of price pressure coming from within the country.

The pound depreciated slightly after the data was published but GBP/USD remained above 1.40. Today's inflation data should not change BoE's attitudes and the possibility of rate hikes during May's meeting seems relatively high. The chances are also increased by yesterday's reports about an agreement on the transition period connected with Brexit between the UK and the EU (until the end of 2020).

Zloty under pressure

The zloty remains relatively weak. It is particularly seen in the PLN/HUF pair, where a drop of more than two percent over a month was noted (how much the zloty weakened to the forint). Also, the EUR/PLN pair shows the pressure on the Polish currency. The euro cost around 4.23 PLN, the most for the last four months.

The main event that caused the pressure on the zloty is the dovish message from the Monetary Policy Council and the low inflationary pressure in the country (also from producers). External factors have a relatively neutral effect on the zloty at the moment. However, if tomorrow, the Fed presents the prospect of four rate hikes this year, then the dollar would strengthen and the global sentiment would deteriorate. These are negative signals for the Polish zloty, especially in the context of the mild monetary policy in the country.


20 Mar 2018 12:24|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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