Afternoon analysis 08.04.2016:
The Fed has resumed a dovish rhetoric. The dollar was steady in a narrow range. The zloty exploited the opportunity to recoup some losses.
Today's data showed an uneven expansion in the eurozone. The latest data from Germany suggested some improvement in industry. A positive tendency has been strengthened after the report on international trade. Germany's export increased 1.4 percent on a monthly basis against the 0.5 percent forecast. Import rose 0.4 percent against the negative 0.3 percent that was projected. As a result, the trade surplus stood at 19.8 billion euros against the 18.5 billion euros expected. Rising trade turnover suggests a broad expansion.
However, the market optimism was limited by the French report on industry. Production dropped 0.1 percent on a monthly basis. The result was worse than the negative 0.5 percent forecast. All in all, although the eurozone economy is growing, the expansion is uneven and fragile.
The minutes from the ECB suggested the monetary authorities stand ready to act. Yesterday's speeches of major ECB officials supported a similar view. Still, it is not very likely the Frankfurt-based institution will add more stimulus in the near future. Moreover, the March decision was not unanimous. As a result, the situation may limit a negative pressure on the euro in spite of remarks suggesting more actions from the central bank.
Federal Reserve President Janet Yellen defended the December decision to raise interest rates and said the US economy is in quite a good shape. In her view the labor market is closing to full employment. Yellen rebuffed the accusations that the economy is full of investment bubbles. Moreover, Yellen said that the inflation goal is not a ceiling for the inflation - a remark that suggest rather strong tolerance for heightened inflation.
On Thursday the current Fed president discussed with her predecessors Paul Volker, Alan Greenspan and Ben Bernanke. Nevertheless, clearly more interesting were remarks made by New York Fed President William Dudley. Dudley suggested a gradual path to interest rate hikes as the US economy is susceptible to many risk factors. Dudley expects the Fed will miss its inflation target and the inflation expectations may fall. He also cited some weakness is part of the economy's sectors.
Although Yellen's speech stressed positive factors, Dudley limited optimism. Given the Wednesday's minutes, the Fed's stance seems to be quite dovish with a basis plan to raise interest rates. In contrast, the ECB reiterates it is ready to act, but it is not very likely it will eventually take any actions. As a result, the EUR/USD stabilized in a narrow range.
The zloty limited losses
The zloty has a bad week. The Polish currency posted losses against all its major pairs. It dropped especially against the euro and the franc. The major factor responsible for zloty's weakness was risk aversion in the broad market. It was not mitigated by quite a hawkish stance of the MPC presented on Wednesday.
Today the negative sentiment in the markets was limited, which was exploited by the zloty. The Polish currency managed to limit losses. In the short term the zloty may stabilize with a tendency to gain.
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