Afternoon analysis 09.03.2015

Zloty starts new week with gains against all major currencies. The euro near its 2003 lows. The European Central Bank launches the full quantitative easing.

On Monday the European Central Bank has started its bond buying program that includes government debt. Frankfurt-based institution launched the operation with countries' central banks. Bloomberg informed that bonds from Germany, Italy, France and Belgium have been bought.

The QE has been decided in January. Since then the euro zone bond market soared – yields have dropped to the lowest levels in history, not only in core countries, but also in peripheral countries that cope with fiscal constrains. Today the move has been strengthened, as the EBC informed of presence in the market.

The ECB plans to purchase 65 billion euros in assets every month. About 45 billion is to be spent on government bonds.

Last Thursday ECB president Mario Draghi said, that the central bank will buy bonds with negative yields to the limit of deposit rate. Currently this rate is set at minus 0.2 percent, what leaves vast room for the ECB to conduct QE.

The EUR/USD dropped after comments from the ECB and very good reports from the US labor market (more about this publication in our previous comments), to the lowest level since 2003. Currently it is very hard to point any favorable factors for the euro against the dollar, what means that further drop is expected in spite of short term corrections that might occur.

Troubled Greece

The beginning of the year has been dominated by concerns that Greece may leave the euro zone. The anxiety has been sparked by the win of Syriza – the party that is against austerity policies imposed on the country by its European creditors.

Two weeks ago Alexis Tsipras's government agreed a bailout extension with euro zone countries, in exchange for sticking to some austerity policies. However, comments that have come from Brussels say that Athens detailed proposals are not satisfactory. The Eurogroup chief Jeroen Dijsselbloem said that it is likely that Greece will not get next aid disbursement.

A negative scenario may affect the market sentiment, if Greek politicians will try to test the Eurogroup flexibility. As a result, this factor may add to pressure on the euro.

Zloty strengthened

The zloty has started new week quite successfully. The Polish currency posted gains against all its major pairs.

The Polish currency will rather continue to gain against the euro and the franc (more about expected weakness of the Swiss currency in our morning commentary). A similar move is less probable against the pound.

However, the USD/PLN is less likely to drop further. If the move continues, it will be rather a short term correction. The Monetary Policy Council has finished easing cycle, what resulted in stronger appreciation potential of the Polish currency. Nevertheless, it is not sufficient to expect a stronger decline of the USD/PLN.