Afternoon analysis 06.03.2015

, author:

Piotr Lonczak

The EUR/USD hit new lows as the US labor market exceeded expectations. The zloty dropped against the dollar and exploited the weakness of the euro.

The US labor market has sustained expansion. In February companies added 295k new workers in non-farming sector – more than 235k expected by analysts and above 239k in the previous month (revised down from 257k). The unemployment rate fell to 5.5 percent from 5.7 percent in last month – the lowest level in seven years.

However, figures on wages have missed forecast. The report showed a 0.1 percent rise in payments from the previous month – a result below 0.2 percent projected and less than 0.5 percent in January. As a result, households purchasing power has grown in a slower pace, what may result in a weaker inflation pressure from consumers.

Nevertheless, today's data reassured investors on strong momentum in the US labor markets. Employment has increased for a twelfth time in a row – the longest streak since mid 90s. Moreover, in 2014 companies added 3.1 million workers – the most since fifteen years.

Euro hit new lows

After today's data was released, the EUR/USD dropped as low as 1.0861. It was the lowest level since August 2003.

On Thursday the European Central Bank has revealed details on its government bond purchasing program, that starts next Monday. ECB president Mario Draghi when ask about buying bonds with negative yields, said that the central bank is limited by deposit rates (currently minus 0.2 percent). Moreover, ECB chief reiterated that QE may be extended, if needed. Such declarations are very negative for the euro.

Loose monetary policy of the ECB coupled with expectations that the Federal Reserve will increase rates in mid 2015 put strong pressure on the EUR/USD. Today's US data gave solid arguments for Fed's hawks to rise rates for the first time since 2006. As a result, the major currency pair is poised to move further low in spite of short term corrections that may occur in the meantime.

After few quite good reports from the euro zone (inflation, unemployment and credit data all above expectations), today's data have been neutral for the common currency. Industrial production form Germany and revised figures on GDP in the euro zone were in line with expectations. As a result, the euro have not been supported by Friday's readings, what would have limited today's plunge.

Zloty rose against the euro

A strong dollar was reflected in the USD/PLN rising to 3.80 zloty – the highest level since 2009. The Polish currency gained against the euro – the EUR/PLN dropped to 4.12 and the zloty was stable against the frank and the pound.

The Monetary Policy Council supported the zloty by cutting rates and declaring a finish of easing cycle. That puts the zloty in a position to extend gains against the euro, the frank and the pound. However, the strong dollar limits potential to any significant USD/PLN drop except short term corrections.

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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