Afternoon analysis 25.11.2014

, author:

Piotr Lonczak

The EUR/USD dropped as the US GDP growth exceeded expectations. The zloty exploited the weakness of the euro.

Today's data supported the dollar. The US economic growth was stronger than expected – the GDP was up 3.9 percent (annualized) – more than 3.3 percent projected. In the previous quarter the US economy rose 4.2 percent.

Stronger than expected GDP report was due higher growth of consumer and business spending compared to the previous estimate. The GDP growth in two back-to-back quarters was the strongest since 2003. Moreover, growth in four of last five quarters exceeded 3 percent.

Although today's data is rather historical, it reassures investors that the US economy's momentum is gaining pace. If other crucial reports – as non-farm payroll and unemployment rate data – also proves good economic environment, the Federal Reserve will stick to its plan to rise rates in the mid 2015.

This scenario paves the way for the dollar to extend gains against the euro and other major currencies.

The S&P/Case-Shiller home price index was less optimistic as prices rose 4.9 percent on a yearly basis in November. The result was the weakest since October 2012. Prices rose 5.6 percent in the previous month.

The euro down before key data

The comments from the European Central Banks representatives were neutral for the euro as Benoit Coeure calmed investors in the case of QE by saying that central bank must first assess impact of used tools before introducing new measures. His words were balanced by Christian Noyer who said the QE is possible as the ECB president Mario Draghi did in the previous week.

On Thursday the European Central Bank will release the newest data on money supply. M3 aggregate is expected to growth 2.6 percent. However, the most interesting figures will concern private credit growth that is projected to decrease 1 percent after falling 1.2 percent in the previous month. If private credit doesn't improve quickly, the QE will be closer.

Moreover, on Friday the Eurostat releases inflation data. According to forecast inflation rose 0.3 percent in November after growing 0.4 percent in October. Such result would be the lowest since 2009.

Given current economic environment in the euro zone, the full quantitative easing that encompasses government bonds is a matter of time. The launch of purchases will only be earlier, if the data keeps disappointing.

The zloty up

The zloty exploited the opportunity to extend gains as the euro weakened. The Polish currency rose against its major pairs after quite good economic data – the unemployment rate fell to 11.3 percent form 11.5 percent in the previous months and retail sales rose 2.3 percent – slightly more than 2.1 percent projected.

The zloty eschewed the impact of the turmoil with local elections and the view presented by Bloomberg publication that pointed at possible discrepancy in the Monetary Policy Council after tape scandal.

The zloty may continue to gain in the short term if the MPC doesn't surprise at its next meeting. The odds for cuts are low and that situation currently puts the zloty in a good position.

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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