Afternoon analysis 21.05.2015

Dollar's winning streak stopped by minutes from the Federal Open Market Committee. The euro did not manage to exploit weakness of the dollar as the Greek uncertainty prevails. Zloty extended its drop after economic reports.

After three days of gains against the euro, the dollar dropped. The US currency was hit by the Federal Open Market Committee's minutes published yesterday. The release showed that the US monetary authorities are not certain whether the weakness of the economy is transitory (more on the issue in our morning commentary).

A somewhat dovish stance presented by the FOMC shifts the outlook for the first interest rate hikes further into 2015. At this moment, it is doubtful whether the cost of credit will rise in September, and no one is talking about June any more. Given the situation, the dollar is less prone to rise against the euro - thus the EUR/USD may resume gains.

The US data concerning the labor market were weaker that the forecast. The number of unemployment claims increased to 274k from 264k. However, the four week mean - a less volatile measure of the situation - dropped to the lowest level since April 2000. The numbers show that companies are not firing workers. This suggests that the expectations are rather positive and slowdown would have been transitory.

Although the report shows that the labor market expansion is still strong, the dollar may be susceptible to negative data as the Fed is dovish.

Greek uncertainty

During the summit at Riga the prime minister Alexis Tsipras will try to convince its counterparts to his new reform plan. The Greek government chief will also outline his debt restructuring program. The time is getting short for reaching an agreement with the international creditors. Germany and France expect the agreement is signed until the end of month.

On Wednesday the European Central Bank decided to increase the emergency liquidity assistance limit to 80.2 billion euro from 80 billion. Frankfurt-based institution said that it still considering may change the terms of liquidity provisions. A similar move would put the Greek banks in very difficult position.

The unpredictability of the situation is pressing the euro, which is not able to exploit weakness of the euro. Moreover, today's reports from the euro zone were rather weak.. Until the Greek crisis is ended, this factor will limit the euro appreciation potential.

Rising pound

In turn, the weakness of the dollar was exploited by the pound. The British currency was supported by the retail sales numbers. It rose 1.2 percent on a yearly basis. A result above the forecast. In the previous month it dropped 0.7 percent. The report was released after surprising inflation numbers, that show negative result for the first time since 1960s. However, the pound returned to gains very fast.

Zloty's weakness

The Polish currency extended losses against all its major pairs. The frank moved above 3.94 to the highest level since February. Similarly, the pound increased to the highest level since mid March.

The drop has been spurred by weak economic reports in the recent days. This factor coupled with the Greek uncertainty is pressuring the zloty. In addition, the presidential election is increasing the volatility. The Polish currency did not exploit the fact, that the Fed is going to extend zero rate policy. The zloty will stabilize with the tendency to drop.