News

Afternoon analysis 18.11.2014

, author:

Piotr Lonczak

The euro rose as the German investor confidence unexpectedly improved. The pound was supported after the inflation growth outstripped forecasts. The zloty exploited an increased risk taking in the markets.

The ZEW index pointed at an economic improvement in Germany. In November the gauge of investor's confidence rose to 11.5 points from minus 3.6 point in the preceding month. It was a way above expected 0.9 points and it was the first gain in 11 months. The ZEW index measures the expectations for economic developments within six months.

Last Friday the GDP growth in Germany was also quite positive. It stood at 0.1 percent on a quarterly basis as expected. As a result, the German economy avoided a slide into recession as the GDP in the second quarter was negative.

Currently data concerning the situation in the euro zone are even more important due to the recent comments form the European Central Bank president Mario Draghi. Yesterday he said explicitly that the full quantitative easing that encompasses government bonds is possible. Draghi also reiterated his belief in the Governing Council as unanimous. His remarks reassured investors that the full QE will be in the game if the data disappoints.

Given dovish statements from Draghi, the euro rose just after he spoke. But later the shared currency moved higher. To move was briefly hold by the ZEW and the US PPI reports releases, but it continued later. Although the ECB is keen to use QE, currently there is no reason for doing that as the recent data was quite positive. The next important data concerning the common currency will be the PMI indices on Thursday.

The wholesale price growth in the United States was faster than anticipated. The PPI growth stood at 0.2 percent on a monthly basis, more than negative 0.1 percent anticipated. The release shortly pushed the dollar higher, as rising inflation increases pressure on the Federal Reserve to rise rates, but the impact of this report diminished very quickly. A more important data that concerns consumer price growth that is scheduled on Thursday. And an earlier significant release will be the FOMC minutes tomorrow, what may be quite hawkish and is likely it will strengthen the dollar.

One of the sources of market's optimism is news from Japan, where government is working on additional stimulus program and delayed a tax increase for 18 months as a result of relapsing into recession (a wider view in our morning commentary).

Inflation helped the pound

The inflation growth in the United Kingdom was a surprise. It stood at 1.3 percent from the previous year, more than 1.2 percent anticipated and up from a previous month reading of 1.2 percent. Inflation numbers were also incompatible with the predictions of the Bank of England that warned the inflation growth may drop below 1 percent within six months.

Lately the sterling was under pressure after some dovish remarks from the Bank of England and disappointing economic data. That shifted expectations for first interest rates from the middle of 2015 to the end of the next year. That puts the pound in difficult position against the dollar.

A positive impact of inflation data was an elusive one. Later the British currency dropped against the dollar and the euro. The Polish zloty exploited the drop of the pound very well – the GBP/PLN fell to 5.26 from as high as 5.40 in the previous week.

The zloty rose

As the Monetary Policy Council deferred an outlook for interest rates cut the zloty is more stable and holds a high potential to appreciation when the market environment is favorable. That was noticeable today.

The USD/PLN dropped near 3.36 and the EUR/PLN fell to 4.21. The CHF/PLN posted some looses but it hovered above 3.50.

The maintenance of this positive performance is rather unlikely as the FOMC minutes will probably support the dollar against the euro. Moreover, the euro zone data scheduled on Thursday may be below expectations. In addition, the Ukrainian crisis is still a potential risk factor despite the lack of new sanctions imposed on Russia as fighting intensified. Nevertheless, the zloty is likely to post some gains in a longer term.


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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