Afternoon analysis 04.12.2015:
The US labor market supported the case for tightening in December. The currency market seeks new equilibrium after surprising move of the ECB. The zloty rebounded against the euro and the pound.
On Thursday, the European Central Bank increased the monetary stimulus. The ECB lowered deposit rate to minus 0.3 percent and extended the asset purchasing program until March 2017. Moreover, it broadened the scope of eligible assets to include municipal bonds and said it will reinvest maturing bonds.
However, the actions introduced by the Frankfurt-based institution were rather limited. The largest disappointment was that the central bank did not increase the monthly level of purchases. Moreover, it did not lower the quality of eligible assets. Regarding to deposit cut, the expectations were to steeper cut even by 20 basis points.
Given the comments from Mario Draghi in the last few weeks, yesterday's ECB actions were very limited. As a result, the markets were disappointed. The euro posted the largest one day gain since 2009. In contrast, the European stock markets dropped significantly.
Labor market on track
On Friday the Labor Department published the November report on employment situation. The release showed 211k increased in non-farm employment. The reading was little above 200k that was forecast. Moreover, the prior month numbers were revised up to 298k from 271k.
The unemployment rate stood at 5 percent, as expected. The average wage increased 0.2 percent on a monthly basis. A reading slightly less than the 0.3 percent that was expected.
All in all, the solid expansion of the labor market has been confirmed. Today's data supported the case for tightening. The report did not result in higher volatility as the reading was near consensus. Moreover, the EUR/USD is less susceptible to declines after Thursday's increase.
Earlier, a good shape of the labor market was shown by the ADP report. The data on employment change in private sector showed 217k in hiring. Also, the weekly data on unemployment claims were quite positive. The number stood at 269k. A reading below 300k is considered as a sign that the labor market is rising.
On Thursday Janet Yellen had a speech. The Federal Reserve President said she is pleased with the performance of the economy and it is immune to the external factors. Regarding expected interest rate hikes Yellen said it will be a proof that the economy is doing well.
Dollar, pound lower
The zloty's performance in the last two months was clearly worse than other regional currencies. Although the forint and the crown also dropped against the dollar, the zloty's decline was stronger. It was caused by the internal factors that include heightened political risk.
On Friday, the zloty gained against the euro, the frank and the pound. The Polish currency was steady against the dollar after strong gains on Thursday.
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