Afternoon analysis 03.03.2016:
The dollar dropped before the employment data. Kamil Zubelewicz from the MPC presented hawkish view on the monetary policy. The zloty dropped against all its major pairs.
The US labor market continues expansion. Yesterday's ADP report on employment change in private sector showed 214k increase in employment. The reading was better than the forecast. Today's data on unemployment claims also confirmed expansion in the labor market despite the fact that the reading missed the forecast. The number of unemployment claims increased to 278k against the 271 forecast. Moreover, the Challenger data was quite good.
Given the latest reports it is highly probable that tomorrow's monthly report on employment situation will also be positive. The forecast is for 190k jobs increase in February. A result close to the expectations will support the scenario of the interest rate hikes in the US.
The latest reports concerning industry were rather weak. The ISM report, the most important sentiment gauge, showed some deceleration in industry. However, the reading was better that the previous, thus it may suggest rebound in the coming months. The report on orders showed a similar tendency.
The latest reports suggest that deterioration in industry was rather a transitory situation. Strong labor market will eventually push households to spend more money and as a result, the inflation rate will accelerate. The factor that supports spending is low gasoline price.
Given the situation, the probability of the interest rate hikes has increased recently. The futures market show more than 50 percent probability for interest rate hike in September. This is significant turnaround as few weeks ago the probability of hikes in 2016 was virtually zero. This factor should support the dollar in the longer term.
In spite of numbers supporting tightening scenario, the dollar dropped against the euro and other major currencies. The EUR/USD exceeded 1.09 against below 1.0830 on Wednesday.
Easing anxiety concerning the current condition of the world economy was reflected in the developments in the commodity markets. The oil price has been recently supported by the possible agreement on output limits. As a result, the emerging market currencies posted some gains. This move was weakened on Thursday.
The zloty was supported by the recent comments from the MPC. They support the general view that the current level of the interest rates is appropriate. It will not be altered by the expectations that the European Central Bank will add to stimulus in March.
Today Kamil Zubelewicz from the MPC presented clearly a hawkish stance (PAP agency). He said the current deflation is positive as it was not caused by drop in the money supply. The price level dropped due to large supply of goods and technological progress.
Zubelewicz said the NBP's inflation goal is a long term guidance. He added that the bigger problem is an upside deviation of inflation from the goal than downside move. Hawkish comments did not support the zloty. The Polish currency posted a broad losses against its major currencies.
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