The dollar’s recent streak of strength began abruptly—and has just as abruptly come to an end. The cause is weaker data from the U.S. economy, particularly slower GDP growth. Meanwhile, inflation in Poland is decelerating faster than expected, and in Argentina, the honeymoon period with the IMF is coming to an end.
A Surprise from Across the Ocean
Yesterday’s batch of economic data did not seem very exciting at first glance. As usual, weekly jobless claims and a GDP revision were released. We already knew the preliminary GDP estimate, so the revision wasn’t expected to be significant. However, it turned out to be quite the opposite. The U.S. reports GDP data on an annualized basis—showing how the entire year would look if the last quarter’s pace persisted. The recent reading showed only 1.2% growth, down from the previously reported 1.8%. This represents a notable economic slowdown.
Additionally, initial jobless claims came in 10,000 higher than expected. These two factors reignited concerns about the health of the U.S. economy. Futures contracts on interest rates indicate that the market is gradually preparing for faster rate cuts. Both these developments caused the USD to weaken noticeably yesterday. The dollar-to-zloty rate fell from 3.75 PLN to 3.73 PLN following the data release.
Inflation Continues to Fall
Today, inflation data were released, showing a value of 4.1%, which not only beats analysts’ expectations of 4.2% but is also the lowest figure since energy prices were partially deregulated in July last year. This suggests that there is again room for interest rate cuts.
As often happens when markets start pricing in rate cuts, the domestic currency weakens. That was the case following the announcement. Lower interest rates mean lower returns on investments tied to those rates, which reduces demand for the currency. While this was not a breakthrough move, after about a 1 grosz increase, the euro-to-zloty rate is once again above 4.25 PLN.
Pressure Returns to Argentina
The Argentine peso is again under pressure. Despite the currency’s recent float and the IMF agreement, large market interventions are still ongoing. Analysts suggest that this might not be the only breach of the agreement. Experts also believe that the anticipated increase in foreign exchange reserves, expected by June 13 to help stabilize the peso, will not materialize.
Over the last two days, the dollar rate has risen from 1,150 pesos to over 1,180 pesos—a depreciation of more than 2.5%. This is comparable to the euro suddenly rising over 10 groszy against the zloty within two days.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Disclaimer: The information contained in this publication is for informational purposes only. It does not constitute financial or any other advice and is of a general nature, not directed to any specific recipient. Before using this information for any purpose, independent advice should be sought.
Source: CEO.com.pl
