Currency report: Inflation data moves markets

Currency markets have been rather volatile recently and it was no different this past week. The big swings were caused by inflation reports published in the United States, the euro zone, the UK and Poland.

In the euro zone, CPI stayed unchanged at 3.3 percent y/y, which is far higher than the 2.0 percent limit set by the European Central Bank (ECB). High inflation is a problem since the European economy is slowing down and an interest rate cut seems reasonable. Right now, the chances for such a move by the ECB declined causing the euro to strengthen.

At the same time, CPI inflation in the US declined to 0.2 percent m/m, which was lower than had been forecast. During the course of the week, the EUR/USD advanced from $1.5390 to $1.5485, reaching as high as $1.5560 on Monday. It seems that this is just a corrective movement, however, and soon the American dollar will continue strengthening.

As usual, investors experienced big swings on the złoty market. This past week, the Polish currency reached new records against the euro at zł.3.3745 and the American dollar at zł.2.1665 on Tuesday. The złoty started losing value on Wednesday when we learned that CPI in Poland dropped to 4.0 percent y/y against a forecast of 4.1 percent.

That result lowers the chances for an interest rate hike by the Polish Monetary Policy Council in May or even June.

The złoty ended the week at zł.3.3855 against the euro and at zł.2.1845 against the dollar.

Adam Narczewski, X-Trade Brokers Dom Maklerski S.A.