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Afternoon analysis 09.02.2015

9 Feb 2015 18:08|Marcin Lipka

The frank gained in spite of warning from the Swiss National Bank. Greece returned to anti- austerity rhetoric. The zloty weakened against its major pairs as risk aversion increased.

The EUR/USD dropped on Monday after the labor market figures released on Friday showed a strong momentum in the US economy (a wider view on the report in our previous commentaries). Given recent labor market data, the Federal Reserve will surely pursue its plan to tighten the monetary policy in mid 2015.

The dollar has been pushed up due to expectations for the Fed to rise rates. In turn, the euro has been pressured down by the European Central Bank decision to introduce a full quantitative easing (the program starts in March) and the rising anxiety that Greece may leave the euro zone.

Syriza's government is testing the tolerance of financial markets. Last week prime minister Alexis Tsipras tried to calm down investors by saying that his government is seeking for a compromise that would please both Greece and its creditors. However, government chief said on Saturday that the country will not extend the bailout program and will undo burdensome reforms imposed by austerity policies.

This move has negatively influenced the financial markets as the risk of debt write down increased. As a result, the Greek stock market tumbled 6 percent and its financial sector plunged more than 10 percent. The sell­off hit bond market – three year bond yields jumped above 22 percent. Turmoil in Greece negatively affected the euro.

Greece is in austerity program – than ensures help disbursements – until the end of February. Later the country may face default, if the government doesn't extend the program. A negative scenario evokes the specter of the euro zone dismantle.

Stronger Frank

The spike in risk aversion resulted in a stronger frank. The European and US stock markets dropped as investor were worried by Greek crisis and developments in Ukraine are getting worse. The Swiss currency posted gains against the euro and the dollar.

During weekend the Swiss National Bank president Thomas Jordan warned in an interview in SRF Radio that there is a room for additional deposit rate cut, by saying although it is not clear where is its lowest possible level, but it is not current minus 0.75 percent. The SNB chief said also, that the central bank is active in the market, but he refrained from giving any details.

The EUR/CHF dropped below 1.05. The unofficial band for the currency is 1.05­1.10 – thus the SNB may intervene to weaken the frank as investors tested its patience. As a result, the CHF/PLN would return below 4 zloty.

Weaker zloty

Firs session in new week was not successful for the zloty. The Polish currency dropped against its major pairs. What is important, the CHF/PLN returned above 4 zloty in spite of warnings from the SNB.

The zloty was affected by the risk aversion in the broad market that has been sparked by Greek turmoil and disturbing information form Asian economies (today's reports on Chinese foreign trade). There is also a potential risk factor in Ukraine, where the developments are dynamic lately.

The fundamental factors are in favor for the zloty, but the currency's appreciation potential is limited by the negative sentiment in the broad market. Until the Greek crisis is tamed and other major risk factors are limited, the Polish currency will stabilize at low level against its major pairs.

9 Feb 2015 18:08|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

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Afternoon analysis 05.02.2015

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