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Afternoon analysis 07.08.2015

, Autor:

Marcin Lipka

Despite many macroeconomic readings from the US economy, the most important was NFP publication which turned out to be close to the consensus. It supports the scenario of first interest rate hike in September.

Mixed signal during the week

It was another interesting week for the currency market especially regarding the interest rate hike in the US. Investors had many contradictory signals from Monday and were not able to decide whether the monetary tightening begins earlier or later this year.

The manufacturing ISM reading didn’t bring the September decision closer, where the subindex of employment dropped from 55.5 point to 52.7 point. The price index dropped from 49.5 to 44 points.

The ISM reading was, however, dominated by “The Wall Street Journal” interview with Dennis Lockhart. The Federal Reserve president from Atlanta suggested that he would have to see a deterioration of data not to vote for hike in September. This comment contradicted with the official FOMC view which would like to see some job's improvement to push for the hike. It was a dollar positive signal.

The “greenback” was not able to continue its appreciation because Jerome Powell was much more cautious during his interview on CNBC than Lockhart. Later the ADP report hit the wire which turned out to be worse than expected. According to the private company the job growth was lower by 30k comparing to the expectations. Theoretically less optimistic signals regarding employment are dollar negative.

More confusion was even brought by ISM services reading. The non-manufacturing publication turned out to be historically high at around 60 points. Additionally, the employment subindex was very strong which is dollar positive.

September hike is a base case scenario

The payrolls reading turned out to be close to the market consensus. According to the BLS the US economy crated 215k jobs in July while expectations were around 225k. This slim difference was leveled off by upward revision from two previous months in the sum of 15k. The unemployment rate was unchanged at 5.3%

Close to expectations was also wage growth, which turned out to be +0.2% m/m. Only the same figure on the y/y basis was lower than expected but it may be a result of seasonally adjustments and some rounding.

As a result the US readings were quite good. The BLS reports should support September interest rate hike in the US. It is also dollar positive publication which may gain some value to the euro. The moves, however, should not be that significant and the test of year's lows are not really probable.

Hard weak for the zloty

It was a tough week for the local currency. The important moment was especially publication of PMI index. The reading turned to be solid (54.5 points). It did not only exceeded expectations around 54.0 points but also showed that the local companies performing much better abroad.

The zloty strengthened after the publication and the EUR/PLN dropped to 4.13 level. But the PLN appreciation was quickly reversed to 4.15 per the euro. In the following days the PLN was more dependent on worsening global sentiment what both pushed the currency and bonds lower. On Thursday we additionally had sell off of financial sector stocks what pushed the zloty close to 4.20.

Currently there is no significant threat the EUR/PLN may rise beyond 4.20 for longer. However, if the dollar resumes the appreciation trend the “greenback” may be worth even 3.90.

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