Afternoon analysis 11.09.2014:
The European Union will introduce new sanctions against Russia after all. Poor labor market data weakened the dollar. The yen extended losses after BOJ comments. Little changes on the zloty.
Eventually the European Union will impose new sanctions against Russia. The incoming restrictions are aimed at barring energy and defend companies from raising the capital in the European financial markets. The EU will also inform on conditions for suspending the restrictions.
The EU's decision is surprising. We could have expected that European policymakers would decide to keep on hold additional sanctions due to easing of the conflict and defiance from the part of countries which argued that new restrictions would only provoke the Kremlin.
In the meantime it seems like Ukraine and Russia seek for a political solution for the crisis. The Ukrainian President Petro Poroshenko reported that a majority of Russian soldiers had left Ukraine. In addition, 700 Ukrainian prisoners have been freed from captivity. The Ukrainian President has spoken to the Russian President Vladimir Putin three times last week. Moreover, the ceasefire has been in force since last Friday. To sum up, it all may suggest that the end of Ukrainian crisis is near.
The Rubble fell to its lowest on record after information on sanctions was announced. The USD/RUB rose to as high as 37.61.
The dollar fell after labor data
The US labor market data have disappointing again. After poor payrolls report (employment rose only to 142,000 to expected 225,000) weekly data on new claims for unemployment benefits also failed to meet expectations. That is next report showing some deterioration of the labor market before the Federal Reserve will meet on 16-17 September.
Weekly jobless claims number rose to 315,000 to 304,000 in the previous week (after revision from 302,000), which is a higher figure than expected 306,000.
Given the expectation for the Fed to rise interest rate in 2015, today's data increased uncertainty in the markets. Few day ago the San Francisco Fed published a report arguing that market expectations are too dovish. That strengthened the dollar and pushed the EUR/USD to the lowest level since July 2013. Meanwhile, poor labor market data may deffer interest rate increase, if negative trend on the market gains strength. Eventually, the dollar fell against the euro after claims data.
The yen under pressure
The yen extended losses against the dollar. The Japanese currency was at its lowest since September 2008.
The currency was pushed down by statement of the Bank of Japan Governor Haruhiko Kuroda, who assured the Prime Minister Shinzo Abe that the central bank will do everything what is needed for fulfill inflation goal. That suggested more additional measures to spur growth.
The yen has been under pressure not only because of easy monetary policy. Additional pressure from was provoked by the pension system reform that may allow the government pension fund to invest part of its financial means in foreign assets. That would imply the selling of yen-nominated assets, what hurts the currency.
The zloty little changed
The zloty was stabilized near its lows in this week. The Polish currency has been negatively influenced by shift of expectation concerning interest rates hikes by the Fed. The US central bank pushed high-yielding currencies lower by suggesting that it may increase rates faster than expected.
Resolving the Ukrainian crisis has created a calm environment for the zloty. The Polish currency has no arguments to rise due expected interest rate cut. Therefore, the zloty will probably remain weak but with lower volatility.
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