Afternoon analysis 06.02.2015

, author:

Piotr Lonczak

The US labor market data supported the dollar. Strengthened risk appetite paves the way for zloty's gains. The SNB interventions haven't stopped the frank.

Monthly data from the US labor market were clearly better than estimated. Companies added 257k in employment in January and reports from previous months were revised up. Moreover, the wages growth stood at 0.5 percent – the highest level since 2008.

The unemployment rate increased to 5.7 percent from 5.6 percent in the preceding month. It was due the improvement in participation rate that grew to 62.9 percent from 62.7 percent in the preceding period. It is next proof that the US labor market is in a very good shape, as more Americans was lured to the labor market in hope for a job.

Given today's reports, the US Federal Reserve received next strong argument to pursue its plan to rise rates in mid 2015. Today the odds for any other scenario are very low.

Today's reports were very positive for the dollar. The EUR/USD gave away its earlier gains and moved down near the level it hit after the European Central Bank decided to stop accepting Greek government bonds as a collateral in liquidity operations.

The outlook for the Fed rising rates and imminent introduction of quantitative easing by the ECB (scheduled in March) paved the way for a larger drop in the EUR/USD.

The euro is affected by the crisis in Greece that is one of major risk factors. The developments in the most indebted country in the euro zone evoke the specter of the monetary union dismantle. Although the likelihood of a similar scenario is very low, it is able to hurt the euro.

SNB in the market

Report on currency reserves from the Swiss National Bank revealed that the central bank has been very active in the market. The SNB's interventions amounted to 57 billion frank in January, according to Reuters.

The drop of floor in the EUR/CHF exchange rate at 1.20 hasn't meant that the monetary authorities gave permission to appreciation of frank. The unofficial threshold is a 1.05-1.10 range.

A strong increase in currency reversed showed that the SNB is determined to pursue its plan. This factor should have resulted in a weaker frank, but today this was not the case as the euro tumbled. Nevertheless, in the longer term SNB interventions will reduce the strength of the Swiss currency.

Zloty may increase

The Polish Monetary Policy Council is ready to cut rates in March. However, there is no clear view on the overall amount of rates reduction. Recently, the PMI report showed an improvement in the Polish industry. Next crucial reports – the GDP growth (in a week) and the National Bank of Poland quarterly forecasts – will be decisive for monetary authorities. If reports improves outlook for the economy, the likelihood of steeper cuts will be diminished.

The zloty posted losses against all major pairs except the euro. However, the solid performance of the US economy and dovish stance of the ECB will result in a stronger risk appetite. As a result, the Polish currency is in a good position to extend gains against all major currencies.

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 the written permission from Sp. z o.o is prohibited.

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