Afternoon analysis 13.05.2015:
The dollar dropped after poor data from the US economy concerning the consumption. Greece fell back into recession. The zloty exploited the European Commission's recommendation to take off the excessive debt procedure form Poland.
The Americans are still reluctant to spend the money. Today's data concerning the retail sales growth has disappointed again. It is not very comforting that the numbers concerning the previous month were revised up.
In April the retail sales was unchanged form the preceding period. It was clearly a result below the expected 0.3 percent on a monthly basis. The numbers concerning the previous month were revised up to 1.1 percent from 0.9 percent reported earlier.
The core retail sales numbers also missed the forecast. The sales growth in this category stood at 0.1 percent - less than 0.5 percent that was predicted. The reading concerning the previous month was revised up to 0.7 percent from 0.4 percent reported a month ago.
The US households are still reluctant to spend the money in spite of low prices of gasoline and very strong expansion in the labor market. Given the reluctance to consume, the GDP growth may be negatively affected as the consumption spending adds up to about 70 percent if the US economy.
Given the recent poor data from the US economy, a downward pressure on the dollar mounts. The latest reports form the US are shifting the expectations for the Federal Reserve to rise rates further in more distant months of the 2015. Current consensus for the Fed to rise rates is September. Earlier this, the forecast was June.
Today's data concerning the euro zone countries were mixed. On one hand, the GDP readings form France and Italy were above the forecast. However, the readings concerning the second and the third largest economy in the monetary union are not very good. On the other hand, the reading concerning the German economy missed the expectations (more on the issue in our morning commentary).
Later, the report concerning the GDP growth in the whole euro zone was released. However, the data missed the forecast. The GDP growth stood at 1 percent - less than 1.1 percent projected.
Eurostat release reveal a negative economic landscape in Greece. In the first quarter of 2015 the GDP growth stood at minus 0.2 percent after dropping 0.4 percent in the last quarter of 2014. As a result, the economy fell back into recession. It is little comforting, the GDP growth was better than negative 0.5 percent that was expected.
Today's readings from Greece revealed an ongoing deterioration in the economic landscape. Earlier, the data on PMI index showed steeper contraction in the industry. Moreover, the European Commission forecast for the Greek economy was negative. As a result, the pressure mounts on the Greek government to broker a deal with country's international creditors.
A stronger zloty
Wednesday's session is very successful for the zloty. The Polish currency posted gains against all its major pairs. The USD/PLN moved briefly below 3.60 zloty.
The Polish currency is strengthened - as other emerging market currencies - due to poor report from the US economy. The weakness of the US economy is shifting the expectations for the Fed to rise rates further into the future - a situation favorable for high yielding assets.
Moreover, the recent news concerning Poland are helping the zloty. The European Commission recommended today to take off the excessive debt procedure form Poland. This means that, the European officials are satisfied with the progress that Poland made in the field of the public finance revamp. The EC forecast the 2.8 percent deficit to GDP ratio in 2015 and 2.6 percent in the next year. The deficit exceeding 3 percent GDP is a subject to financial penalties.
The EC decision is another factor that supports the Polish currency. If the risk aversion is limited, the zloty will return to gains against all its major pairs.
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 Cinkciarz.pl Sp. z o.o is prohibited.
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