The EUR/USD frozen before decisions on Greece and Ukraine. The zloty pressured – the euro moved near 4.22 zloty and the dollar surpassed 3.73 zloty. Frank stayed above 4.02 zloty. The pound hit 5.70 zloty – the highest level since 2007.
The euro was little changed before meeting of euro zone finance ministers that is expected to yield a solution for EU-Greece dispute. The likelihood for the outcome that would meet every goal of Athens is very low due to stiffen stance of Germany. The EUR/USD was moving in a narrow band near 1.13. The euro was lower against the pound.
However, the most likely scenario is a compromise that will require concessions from both sides. A similar solution would support the euro in the short term. Still, given the Federal Reserve plan to rise rates in mid 2015 (confirmed by Jeffrey Lacker and John Williams yesterday), the dollar will remain in position to extend gains in a longer term.
Fighting in Ukraine
Talks in Minsk will rather not fruit a solution that would alter the situation in eastern Ukraine. Information agencies said that the fighting in country intensified before today's meeting of leaders of Russia, Ukraine, France and Germany. Earlier, talks have been seen as a final chance for peace deal.
Pro-Russian separatist are not eager for a cease fire agreement as they have captured new territories. Moreover, the Russian position in negotiations is favorable as the possible EU sanctions are not damaging and the US supply of weapon for Ukraine would be a reason to increase Russian presence in eastern Ukraine.
Heightened risk aversion in the markets resulted in a weaker zloty. The Polish currency dropped against all its major pair. The euro moved above 4.22 zloty and the dollar above 3.73 zloty. The Swiss frank stayed above 4.02 zloty.
The British pound moved above 5.70 – the highest level since 2007. Also, the British currency hit seven years highs against the euro. The GBP/USD also moved higher, but the increase was smaller. The sterling was fueled by yesterday's report form industry, that exceeded expectations. Tomorrow the Bank of England will release its GDP and inflation forecasts. The report may alter expectations for interest rates hikes and – as a result – extend the pound rally.
The weakness of the zloty during this week has been caused by the developments in the broad market. The likelihood for a moderately positive scenario in the Greece case is quite high, but in the case of Ukrainian crisis is very low. The unpredictability of the situation is high and the reaction of the market is very hard to predict.
On Friday the zloty will have an opportunity to rebound if GDP report is good enough. The GDP growth is expected at 3.2 percent – a level that pleases the Monetary Policy Council. As a result, the MPC willingness to cut rates in March will be diminished. Moreover, a better GDP result will help the zloty to gain, if the major risk sources are softened.