Economy Across the Ocean
Friday was a holiday in the USA for Independence Day, so Americans did not publish macro data – the backlog was caught up on Monday. The PMI for services was 51.2 points, 0.2 points lower than expected.
The ISM services report reached 54 points and was also 0.2 points weaker than forecasts. While awaiting this data, the dollar strengthened against the euro. After publication, investors judged it was not a good day for the US currency to strengthen, and the rate rebounded upward.
However, the moves were not strong – total volatility on the main currency pair was noticeably less than a cent between the lowest and highest levels yesterday.
Is the market waiting for the RPP?
Tomorrow the Monetary Policy Council will decide on interest rates. Looking at the data alone, it seems we have an open window for cuts. Inflation is 2.5% and sits exactly in the middle of the inflation target.
The main interest rate is 3.75%, 1.25% higher than inflation. On top of that, the labor market – which supposedly is not taken into account – is facing some problems.
So why do analysts not expect cuts? Strong inflation risks remain in the market. The Strait of Hormuz is indeed open, but that only means tankers are starting to exit – the commodity still needs to reach a refinery, and then to consumers.
As a result, we have a situation where the inflation indicator could still jump higher. If rate cuts happen tomorrow, it will be a signal that clearly weakens the zloty.
Hungarian Data
Yesterday the industrial production reading for May in Hungary was released. The country presents two indices: n.s.a. and w.d.a. The first, i.e., the reading without adjustments for business days and seasonality, showed a 0.4% drop in production.
The second, which includes those adjustments, indicated a 5.4% increase. So are these good or bad data? Considering the market expected a reading 1.8% higher, they were definitely an unpleasant surprise for Hungary. Parallelly, slightly better retail sales data were released, but the Hungarian forint still fell yesterday.
Today’s macroeconomic calendar worth noting includes:
14:30 – USA – foreign trade balance.
