Afternoon analysis 20.08.2015

The dovish Fed weighted on the dollar. The report from the US labor market slightly below the forecast. The zloty was quite steady.

The Federal Open Market Committee's minutes from the July meeting were more dovish than expected. The US central bank cited a variety of factors that defer the interest rate hike. The Chinese crisis, a strong dollar and no certainty regarding the outlook for inflation were pointed out (more on the issue in our previous commentary).

Given the situation, the likelihood of an interest rate hike in September was significantly reduced. On the basis of the futures market, it was limited to only 23.6 percent from the 45 percent level yesterday (according to CME). As a result, the dollar declined. The EUR/USD moved to 1.12 dollars. It was the highest level since the end of June.

The scenario of no hike in September was supported by the report from the labor market. The number of unemployment claims missed the forecast, by raising to 277k from the 273k in the prior week. Although the reading showed an ongoing expansion of the labor market, the dollar is susceptible to negative information.

Snap election

The Greek media said that Prime Minister Alexis Tsipras will seek a snap election. The government's official was cited, who said the idea of a vote of confidence was dropped, but the early election scenario in September is still on the table.

Prime Minister Alexis Tsipras is very popular in Greece. Hence, the election will help him to increase his power. As a result, he will quell the rebellion in the Syriza party. Some members of Tsipras' party voted against the government in the previous crucial votes on the bailout program. Given the situation, there is some risk of an unexpected government collapse.

Greece paid the European Central Bank debt thanks to the money from the bailout program. It means that the impact of the Greek crisis is not significant any more.

Steady zloty

The Polish currency was quite stable in comparison to other emerging market currencies. Today, the Turkish lira and the South African rand posted significant losses. The decline of the oil price near the 40 dollar level hit the rubble. The USD/RUB exceed the 67.50 level. The commodities sell-off, the Chinese crisis and the political unsuitability are all factors which are more important than the postponed interest rate hike in the US.

The Monetary Policy Council's minutes from the July meeting showed that the monetary authorities worried about the deterioration of emerging market economies. The Polish monetary authorities stressed the importance of the Chinese crisis and its impact on other economies. The MPC expected the GDP growth at 3.5 percent. However, the growth missed the forecast, whereas the anxiety concerning Greece was not materialized. Recently, there were some rumours about interest rate cuts. However, the MPC's minutes did not suggest a possible solution. In addition, Elzbieta Chojna-Duch from the MPC said, one should expect the credit cost to remain at the current level.

The MPC assessed the Fed's tightening and may negatively affect the zloty. Although the likelihood of a hike in September was significantly limited, the zloty did not increase. All in all, the Polish currency is more stable than other emerging market currencies.