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Afternoon analysis 12.08.2015

12 Aug 2015 17:25|Artur Wiszniewski

The dollar dropped as the outlook for the Fed to increase rates is getting vaguer. The Swiss franc rose on growing uncertainty regarding Greece. The zloty increased against the dollar and the pound.

Once against the People's Bank of China devalued the yuan. As a result, the currency dropped 3.5 percent within two days to the lowest level since 2011. The action undertaken by the Chinese central bank severely influenced the markets. The currencies of countries exporting to China dropped. Moreover, the major stock exchanges declined. Especially the DAX index plunged as the German economy has significant exposition on the Chinese market.

Yesterday there was a notion that the PBOC decision to devalue the yuan was one off. However today we see that the Chinese government will accept a stronger decline of its currency. The goal is to improve the nation's competitiveness.

The monetary authorities said the current situation is normal and it has been caused by the revamp in the exchange rate setting principles. By the end of the session, the Chinese banks sold the dollar to stem the yuan's slide. The action was ordered by the PBOC. This was a signal, that the central bank have been surprised by the overall developments.

On Wednesday we see a significant dollar's decline. The move was due to drop in the likelihood of interest rate hikes in September.

Today's comment from the Fed was quite dovish. The New York Fed President William Dudley said that the development China have huge implications. The impact will be observer especially in the emerging economies. And there is some deceleration in the Chinese economy. However, Dudley said the Fed hopefully will be able to raise rates in the near future.

Greek doubts

On Tuesday Greece signed an agreement with the international institutions. The deal should have paved the way for the three year bailout program worth 86 billion euro. However, it has to be accepted by the Greek parliament, the eurogroup and some national parliament in the eurozone. All in all, decisions were expected in the beginning of the next week.

However, some doubts have occurred whether the German parliament will agree to give money to Greece. Earlier there had been a notion that the nation would receive the money after it introduces at least some of the crucial reforms. Last time, 60 lawmakers from the Chancellor Angela Merkel's party were against the bailout program - a threat that the next voting may not be successful.

Moreover, there were rumors that the Greek Prime Minister Alexis Tsipras was given an offer of the bridge loan from the German government. The proposal was made to reduce the risk for Athens by providing enough money to fulfill the next obligation to the European Central Bank (due on 20 August) and build a broad support for the third bailout.

The doubts that have arisen supported the franc. The Swiss currency rebounded from the lowest level since 15 January. The CHF/PLN also increased.

Solid trade data

Poland's international trade surplus in the first half of 2015 increased to almost 12 billion zloty. In the corresponding part of the prior year there was a 4 billion deficit. The situation is a result of steady exports growth and the imports stabilization (due to the oil price decline). This factor will support the GDP growth.

The situation in China has made visible changes in the markets. It also influenced the zloty. The Polish currency increased against the dollar and the pound. The zloty was steady against the euro and dropped slightly against the franc. If the belief that the Fed will postpone interest rate hikes is more prevailing, the zloty will likely extend its gains.

12 Aug 2015 17:25|Artur Wiszniewski

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:

12 Aug 2015 12:54

Daily analysis 12.08.2015

11 Aug 2015 17:15

Afternoon analysis 11.08.2015

11 Aug 2015 13:07

Daily analysis 11.08.2015

10 Aug 2015 18:05

Afternoon analysis 10.08.2015

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