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Afternoon analysis 13.03.2015

, author:

Piotr Lonczak

Ongoing Greek turmoil and expectations for the Fed to raise rates pressured the EUR/USD into new lows. The Monetary Policy Council has diluted its stance on interest rates. The zloty dropped against all major pairs.

Greek still hasn't reached a deal with country's creditors on extension of financing. Berlin reiterated that Athens are obliged to stick to the previously agreed terms. Finance minister Wolfgang Schaeuble is not willing to make any concessions.

However, the European Commission chairman Jean-Claude Juncker has called both sides – Greece and Eurogroup – to find a compromise. Juncker believes that Greece leaving the euro zone is a scenario that poses a significant risk to whole European integration and it has to be avoided.

Syriza government conducts negotiations with the Eurogroup not with the EC – thus Juncker's statement is non-biding. Nevertheless, he tries to pressure Germany and the Eurogroup's chairman Jeroen Dijsselbloem to ease their stance.

Strong dollar despite poor data

After some relief on Thursday today the euro resumed losses. The common currency hasn't managed to extend the rebound as the European Central Bank's quantitative easing and problems with Greece remained major sources its weakness.

On the other hand, the Federal Open Market Committee meeting is getting closer. The Fed is expected to drop “patience” from its statement. A similar scenario will lead to interest rates hike in June. As a result, the dollar will gain very strong argument to extend its gains (more about the expectations before the FOMC meeting in our previous comments).

The US currency was not affected by weak reports. The University of Michigan consumer sentiment index dropped to the four-month low. The deterioration of sentiment comes after poor data on retail sales. A wider view on recent readings suggests that the US consumers are not eager to spend money in spite of very good situation in the labor market. However, this has not influenced the expectations for the Fed rising rates in coming months.

The EUR/USD dropped in the second part of the session the 1.0481 – the lowest level since the beginning of 2003.

Weaker zloty

The zloty dropped against all its major pairs on Friday. The USD/PLN hit new multi-year highs – a 3.96 zloty level has been seen for the last time in May 2004. The frank also posted gains against the Polish currency and hit the highest level since 18. February.

Today's data on inflation were not helpful. The inflation rate dropped to minus 1.6 percent – the lowest level on record. The inflation rate stood at minus 1.4 percent last month (revised from minus 1.3 percent). In turn, quite good data on international trade didn't support the zloty.

Comments from the Monetary Policy Council had more significant impact on the zloty. Jerzy Osiatyński said that the MPC may cut rates if zloty's appreciation is to extensive. On the other hand Andrzej Kaźmierczak also form the MPC sees a possible rates change, but in a situation of zloty's slide (for example due to Ukrainian crisis).

A similar approach differs in some extent from the MPC statement after last decision. Moreover, it is not coherent with the view presented by the NBP president Marek Belka who said that rates will not be altered before the end of MPC tenure.

Nevertheless, the comments from the MCP are not as important as the trend in the major currency pair that affects the zloty. The Polish currency remains in the position to drop further against the dollar and to increase against the euro and frank, given the market environment is favorable for risk assets.


This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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