Afternoon analysis 13.02.2015

The zloty pressured by inflation and GDP reports. The euro is waiting for final decisions on Greece. A deterioration of consumer sentiment in the US didn't affect the dollar.

The reports on GDP growth in the euro zone showed that the expansion is gaining momentum. The major engine of the monetary union – Germany – posted a very good quarter, what is a solid base for optimism.

However other major economies – France and Italy – are in worse shape. Moreover, Greece posted a decline in GDP after three quarters of expansion. The situation will improve as the European Central Bank quantitative easing (starts in March) percolates to the real economy.

After the data was released, the euro inched higher. However later, the common currency gave away its earlier gains and hovered above 1.14 dollar.

The major risk factor in the monetary union is Greece. Today the country returned to negotiations with its creditor, what is a positive premise before Monday's decisive talks. Prime minister Alexis Tsipras ensured investors that the deal will be sealed.

Yesterday the European Central Bank agreed to expand emergency liquidity assistance to 65 billion euro from 60 billion. That information lifted markets in Greece. However, this situation revealed that Greek financial problems are mounting, thus the Athens will be more prone to concessions.

The consumer sentiment in the United States deteriorated. The Michigan University gauge dropped to 93.6 form 98.1. The readings didn't affect the dollar.

Inflation, GDP pressured zloty

A positive view on the zloty deteriorated very fast. Just yesterday, the Polish currency gained as the Minsk agreement between Russia and Ukraine lifted the markets. A hope for ending the Ukrainian crisis removes some risk aversion from CEE assets and in the longer term creates the opportunity for rebounding the trade (Poland exports to CEE countries dropped 17.5 percent in 2014).

In spite of positive sentiment in the broad market, the Polish currency was hit by domestic reports. Firstly, the CSO showed GDP figures that missed expectations. The economy growth stood at 3 percent – less than 3.2 percent anticipated and less than 3.3 percent in the preceding period. Secondly, the inflation report also missed expectations. The inflation dropped 1.2 percent on a yearly basis – mainly due to cheap gasoline prices and falling food prices.

The Monetary Policy Council said that the rates will be cut in March. Today's reports provided more arguments to the dovish part of the MPC. Next week we will receive more important reports on labor market, industrial production and retail sales. However, the MPC will also asses the NBP March forecast, before deciding on rates.

Friday's data took away some appreciation potential from the zloty. The Polish currency will exploit some improvement in sentiment in the broad market, but the overall increase will be more limited. The euro staying below 4.20 zloty and the frank under 4 zloty should be considered as a success.