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Afternoon analysis 15.07.2015

, author:

Piotr Lonczak

Janet Yellen's testimony was quite hawkish. Moreover, today's report supported the dollar. The Greek parliament to vote on bills to unlock bridge financing. The zloty was stable after recent gains.

The testimony of Janet Yellen to the Congress was published before the hearing. The Federal Reserve Chair showed a quite hawkish stance of the US monetary authorities.

The Fed's chair sees an interest rate hike this year, if the economy grows as expected. The central bank is anticipating economic expansion to improve and the unemployment rate to decline over the rest of the year.

Yellen said, that the point of the first hike is not as important as the later path of tightening. Regarding the Fed's forecast for two hikes this year, she said it is only an expectation not an intention. The decision to lift rates will be based on the assessment of the labor market and the conviction that the inflation rate will return to the Fed's target.

With regard to the world economic situation, Yellen said that the GDP expansion may be stronger than it was expected earlier this year. However, Greece and China were cited as potential sources of risk. Nevertheless, the Fed chair said that the US economy may also accelerate later this year. The slowdown in the first part of the year was transitory, and low gasoline prices will eventually support consumption. The statement was optimistic towards inflation.

The market expectations are for the September term as a moment of first interest rates hikes. The next hike is then expected in December.

Given Yellen's statement, the dollar is currently in the position to extend gains. Moreover, today's reports supported the US currency. The industrial production growth stood at 0.3 percent, more than expected. Also the industrial sentiment in the New York region was better that the forecast. Similarly, the production prices index exceeded expectations. Today's report has improved the overall assessment of the US economy after yesterday's weak data on retail sales.

Greek voting

Today the Greek parliament will vote on the bills to unlock the bridge financing, before the bailout program from the European Stabilizing Mechanism is launched. In spite of severe criticism of the deal with international creditors, it is very likely that the expected bills will be pushed through. However, if the number of Syriza dissidents is quite high, the position of Prime Minister Alexis Tsipras will be weakened.

The latest news said that Athens will receive the bridge financing through the European Financial Stabilising Facility. As a result, the European Union countries will contribute, not only the eurozone states. The idea was criticized by the United Kingdom. Nevertheless, the London government will not be able to put the process on hold.

Inflation ignored

Today's inflation numbers were in line with the forecast. The pace of prices growth stood at minus 0.8 percent on a yearly basis. In the previous month the inflation rate was minus 0.9 percent. Currently, the report is not important for the zloty. However, the situation may change, if the inflation rates is not picked up later this year.

Given the quite hawkish statement of the Fed's chair and some good reports from the US economy, the zloty was negatively affected. Today the move was not significant however. But in the long term the influence of the Fed's tightening will be more apparent. However, the progress on Greece will result in short-term strengthening of the zloty.


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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