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Afternoon analysis 14.04.2015

, author:

Piotr Lonczak

The EUR/USD rebounded as the report on the US retail sales missed expectations. The International Monetary Fund raised the forecast for the eurozone economy, but cut the outlook for the United States. The zloty exploited weakness of the dollar.

After six declines in a row, the EUR/USD rebounded today. The catalyst for this move was the report on retail sales, that again missed expectations. As a result, the overall view on the US economy has deteriorated and the likelihood for interest rate hikes in mid 2015 has dropped significantly.

The retail sales growth in March increased to 0.9 percent. On one hand, it has been the first increase in the last four months. On the other, the result was lower than the 1.1 percent that was projected by analysts. The core retail sales numbers also missed the forecast.

Given the recent data, the outlook for consumption growth has been deteriorated. It is a threat for the GPD growth as the households spending adds up to almost 70 percent of the US economy. This is somewhat surprising as the labor market expansion is very strong and the lowest gasoline prices in years are allowing to save money on transportation.

If current trends in the US economy hold, the likelihood for interest rate hikes in June will drop significantly. As a result, the major factor that has been responsible for the dollar’s recent appreciation will be softened. Thus – the correction in the EUR/USD market may continue.

However, the latest comments from the Federal Reserve diminish the importance of weaker reports in the first quarter as the severe winter has negatively affected the economic activity. And a wider look at the US economy – especially on the labor market – shows that the situation is quite good.

IMF sees improvement in the eurozone

The second factor that lifted up the EUR/USD was the release of the newest forecasts from the International Monetary Fund. The forecast for the US economy has been cut to 3.1 percent in the 2015-16 period from respectively 3.6 percent and 3.3 percent in the previous report. In turn, the outlook for the eurozone has been raised to 1.5 percent and 1.6 percent from 1.2 percent and 1.6 percent previously.

This means that, the IMF believes that the European Central Bank quantitative easing will help the economy, and the coming tightening in the US may negatively affect growth.

Stronger zloty

The dollar's plunge was exploited by the zloty. The Polish currency managed to extend gains against the US currency. However, the zloty gave away earlier gains against the euro after a brief drop below the 4 zloty level today. The Swiss franc also increased.

The zloty was not affected by the Financial Times information on the possible default of the Greek government. Investor's behavior suggests, that this factor is limited to the Greek financial markets. The zloty was not influenced by the release of the IMF forecast for the Polish economy, that raised the GDP outlook to 3.5 percent from 3 percent previously.

The Monetary Policy Council will decide tomorrow on rates. The decision may affect the zloty, if the MPC points at its recent appreciation against the euro as a possible threat for the economy. However, a similar scenario is not very likely, thus the zloty may continue to increase.


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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