Afternoon analysis 28.04.2015:
The dollar dropped ahead of the Federal Reserve's policy meeting. The zloty gave away earlier gains against the euro and the pound, but it increased against the dollar and the franc. The developments concerning Greece pleased investors.
The investors' reaction on the news coming from Greece was rather positive. Yesterday the government decided to limit the role of Yanis Varoufakis in the day-to-day negotiation process. Moreover, the prime minister Alexis Tsipras said in an interview that he considers referendum if negotiations with country's international creditors fail (more on the issue in morning commentary).
Given the market course today, we see that investors were quite pleased with the recent decisions in Greece. Although the referendum proposition is not a good idea, it is seen as a last resort measure and a way to discipline the Syriza party. A more important fact is that the Greek prime minister expressed a belief that the final agreement may be signed in this or the next week. Moreover, Alexis Tsipras said that the German chancellor Angela Merkel is willing to find a solution for Greece and is aware of the possible negative consequences of a bankruptcy.
The euro posted next winning day in a row and rose to the highest level in three weeks against the dollar. A sign that the risk aversion has been limited was an increase of the EUR/CHF. The EUR/CHF increased to 1.0475 – the highest level in three weeks.
The S&P/Case-Shiller index – a measure of price developments in the largest US cities - increased more than it was expected. In February prices rose 5 percent on a yearly basis. The forecast was plus 4.7 percent.
The result suggests that the housing market is gaining momentum after weak period in recent months. However, other reports were rather negative.
The Conference Board index - a measure of households' sentiment - plunged to 95.2 from 101.4 in the previous month. A reading below the forecast. In addition, the Richmond Fed index - a sentiment gauge in the industry - missed the forecast. It increased to minus 3 from minus 8 - a smaller increase that minus 2 that was projected.
The afternoon releases added to pressure on the dollar before tomorrow's Federal Reserve decision on interest rates. The US monetary authorities will rather confirm the opinion that the first interest rate hikes will be postponed later the year, As a result, the rebound in the EUR/USD is likely to last for longer.
The first part of the day was not successful for the zloty. Later however, the Polish currency managed to recoup some losses against the pound and extended gains against the dollar and the Swiss franc. The zloty was weakened against the euro - the EUR/PLN returned above the 4 zloty level.
If tomorrow's Fed statement is rather dovish, the zloty may return to gains as the risk appetite will be improved. Given the recent poor data from the US economy, a similar scenario is likely.
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