Weekly Currency Report: Stricter monetary policy soon?

Currency markets remain under the influence of global sentiment of investors. The reporting season of U.S companies is good, which was confirmed by better than expected quarterly results of Microsoft. Investors are ignoring good news from American company since other issues are more important. The U.S housing market is not recovering yet, which was shown by worse than expected new and existing home sales. Surprisingly high was U.S GDP in the fourth quarter, which increased by 5.7% (forecasted 4.5%) but the results can be misleading since a 3% increase was due to increased company inventories. Investors were not surprised by the Fed keeping interest unchanged and Ben Bernanke’s election for the second term as Fed’s Chairman. What was surprising though was the voting, which for the first time was not unanimous. Kansas Fed’s president, T.Hoenig, wanted to remove the phrase "extended period" in regards to how long interest rates will remain low. This would be a very major change, which is rapidly could increase market interest rates and that Fed voting members will seek to avoid. The U.S dollar keeps gaining value and the EUR/USD declined to $1.3930 at the end of the week ($.14190 on Monday). News from the Polish economy were ignored by investors despite retail sales increasing by 7.2% and unemployment remaining at 11.9% (the MPC also kept interest unchanged at 3.5%). On Friday, the government announced the plan to “heal” the Polish financial sector but for specifics we will have to wait. During the week the EUR/PLN declined to zł.4.0420 while the USD/PLN climbed to zł.2.9025.

Adam Narczewski

XTB Poland

X-Trade Brokers Dom Maklerski S.A.

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