Afternoon analysis 27.08.2014:
The Euro rebounded from the lowest level in almost a year. The common currency rose after Germany's finance minister damped expectations sparked by ECB's president. The zloty didn't exploit increase of risk-taking on the markets and gave up early earnings.
The impulse sent by European Central Bank President is fading. Mario Draghi at the conference in Jackson Hole on the last Friday said that ECB will use every possible tool needed to safeguard price stability. Investors took his words as a promise of providing more accommodative monetary policy and eventually imposing the quantitative easing in the Euro Zone.
The Draghi speech sent the Euro to the lowest level since September 6th, 2013. But this factor has lost its power and currently the market is seeking new reasons for price movements. Firstly, there was some rumors about possible interest rates cut on the ECB's meeting next week. But after that a bucket of cold water was poured on these speculations by Germany's finance minister.
In an interview in Passauer Neue Presse newspaper, Wolfgang Schaeuble said that Draghi's words on possible easing of austerity measures have been wrongly interpreted. The statement of one of the key Germany's government member cast doubt whether ECB's president will be strong enough to pursuit his plan to ease credit conditions and implement QE in the case of Bundesbank's defiance.
As a result, the Euro tried to recoup some losses form the beginning of the week. EUR/USD rose to 1.3179 from Today's minimum of 1.31521.
The zloty eventually went down
The talks between president of the Ukraine and his Russian counterpart haven't provide any breakthrough. Although both Petro Poroshenko and Vladimir Putin positively assessed the outcome of the meeting, there is no imminent chance for ceasefire. Meanwhile, Kiev informed about capturing of Russian troops inside the Ukraine and the growing number of casualties.
The meeting by itself is progress toward the final resolution of the crisis, but the ultimate goal is still far in the future. In the context of Ukrainian economic distress the positive outcome of the talks was agreement to schedule the negotiations on restarting gas supplies from Russia in two days.
The zloty didn't exploit grow of a hope for easing the Ukrainian crisis to rise. After quite good morning the Polish currency gave up its gains and moved to the lowest level in this week. From a perspective of high-yielding currencies a truce between the Israel and the Gaza Strip was another good news.
The base case scenario for the zloty is currently expected interest rate cut due to deterioration of economic data and exceptionally low inflation. On Tuesday Central Statistical Office showed figures on retail sales and unemployment rate. The first report was in line with expectations, but the second one was worse than forecast – the unemployment rate fell to 11.9 percent form 12 percent, while 11.8 percent was expected. Worse unemployment numbers strengthened the case for interest rates cut.
The zloty fell to 3.184 against the dollar and to 4.197 against the Euro. The franc rose to 3.478 zloty and the pound increased to 5.28 zloty.
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