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Currency and Stock Markets Weekly Outlook

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Dollar strikes back

Mon, Jun 16 2008, 10:01 GMT
by Adam Narczewski

X-Trade Brokers, XTB

Last week showed that sentiment towards the dollar is still strong. Speeches given by Fed’s Chairman, Ben Bernanke, were interpreted as “hawkish” causing the eurodollar to drop from $1.5825 all the way to $1.5320 throughout the course of the week. Bernanke mentioned that inflation can be dangerous for the American economy and that the Fed will “take all necessary steps” to fight it. Analysts already predict interest hikes in the U.S to 2.75% till the end of the year. The threat of inflationary pressures was confirmed by Friday’s U.S CPI publication, which showed that inflation in America grew to 4.2% on a yearly basis against the forecasted 3.9%.

Inflation is also the main topic among Polish investors. It seems very probable that the Polish Monetary Policy Council (MPC) will increase interest rates by 25 basis points to 6.00% on its June meeting. Friday’s CPI report showed that inflation in Poland grew to 4.4% on a yearly basis against the forecasted 4.3% (previously at 4.0%). Now, the MPC is waiting for Monday’s publications regarding the Polish labor market and wages, which can confirm strong inflationary pressures. Despite possible interest rate hikes in Poland, this past week was not so good for the Polish currency. The strong dollar was the main cause for the Złoty to lose ground. The EUR/PLN increased from zł.3.3745 to zł.3.3880, reaching even zł.3.40 on Friday. The Polish currency lost the most against the strengthening dollar. The USD/PLN shoot up from zł.2.1430 all the way to zł.2.2095. Is this just a correction movement or the trend of the Złoty changed? Next week we should have the answer to this question.

Published on  Mon, Jun 16 2008, 10:01 GMT