Afternoon analysis 18.11.2015

, author:

Marcin Lipka

The dollar dropped before the Federal Open Market Committee's minutes. The US housing market missed the forecast. The zloty is steady after the labor market readings.

After the European session, the Federal Open Market Committee's minutes are scheduled. It will be the most important release from the Federal Reserve before the central bank's key meeting in December, when a decision on the interest rate hike is expected. If the cost of credit goes up, it will be the first similar move in almost a decade.

The latest data from the US economy support the case for tightening. The latest labor market report has been decisive. Employment in the non-farm sector increased more than expected (plus 271k). As a result, the probability of an interest rate hike in December, based on the futures market situation, moved near 70 percent according to Bloomberg data.

Today's housing market data missed the forecast. The number of housing starts dropped to 1.06 million against the 1.16 million that was expected. However, the number of building permits stood at 1.15 million - in line with the forecast. Given this reading, it is likely that housing starts will increase in the coming months. All in all, the overall assessment of the housing market remains positive.

Today, the EUR/USD rebounded from the lowest level in seven months. However, the chance for a stronger rebound is rather limited as the divergence between the European Central Bank and the Federal Reserve is going to increase further. Recent signals coming from the Frankfurt-based institution point at more easing in December.

Wednesday's speeches from the Fed members did not provide any important remarks on the monetary policy and economy. Only Richmond Fed President Jeffrey Lacker talked about the monetary policy. He confirmed his view that December is appropriate for tightening. However, Lacker is known for his hawkishness, thus the comments did not affect the markets.

Zloty steady at low level

In October, the reports from the Polish labor market did not surprise. Employment increased little more than expected. Growth stood at 1.1 percent on a yearly basis against the 1 percent that was forecast. However, data on wages missed the expectations. It increased 3.3 percent against the 3.6 percent that was forecast. The reports confirmed that the labor market expansion remains strong.

Today's reports did not affect the zloty as tomorrow's reading will be more important. On Thursday, reports on retail sales and industrial production are scheduled. In the third quarter, the GDP in Poland accelerated (to 3.4 percent from 3.3 percent) in spite of weaker readings on sales and production.

On Wednesday, the zloty was quite steady. However, the Polish currency was at a low level. On Tuesday, the dollar hit the 4 zloty level - the highest level in 11 years. Similarly, the pound moved above 6.08 zloty - the highest level in more than a decade. If the FOMC's minutes are more hawkish than expected, the zloty may drop lower.

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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