Afternoon analysis 22.04.2015

An unexpected decision from the Swiss National Bank hit the franc. The zloty dropped – the EUR/PLN moved above 4 zloty.

The franc was hit by an unexpected decision from the Swiss National Bank. The Swiss monetary authorities widened the scope of financial institutions that are a subject to the negative interest rates. Until today, not every financial institution was obliged to pay for holding a deposit in the central bank.

As a result, the range of institutions paying for keeping money in the central bank will include companies associated with the Confederation government, the public pension fund and the Swiss National Bank pension fund. Moreover, the SNB will monitor other institutions that are still excluded from the negative interest rate regime, and may decide to make further adjustments.

The franc dropped against all its major pairs after the SNB decision was released. The Swiss currency dropped to the zloty – the CHF/PLN moved near the 3.85 level. Nevertheless, the franc is still the best performing major currency due to the SNB decision in January, to remove the 1.20 floor in the EUR/CHF.

Greek crisis mitigates

The likelihood that the Eurogroup will reach an agreement with the Greek government during the meeting in Riga on Friday, is very low. However, one can not exclude the possibility that some form of calming communicate will be announced.

In the recent hours, information agencies cited unofficial sources, that the difference between Athens and Brussels is narrowing. A similar view was presented yesterday by the Greek finance minister Yanis Varoufakis (more about this issue in our morning analysis).

Moreover, Reuters informed that the source in the Greek government said that the authorities will gather enough money to operate until June. As a result, the country still has enough time to reach an agreement with the international creditors. In addition, the agency said that the European Central Bank is not going to limit the access to emergency liquidity to the Greek banks.

The base scenario for Greece is that the country will finally reach an agreement with its creditors, and there will be no bankruptcy. This risk factor is not weighting in the broad market, and is mainly limited to the Greek financial market.

The EUR/USD was volatile, as the economic calendar was almost empty. The dollar was strengthened by the data on used homes sales that exceed the forecast. As a result, the major currency pair hovered near its previous close.

Zloty's correction

The zloty continued to drop. The Polish currency was lower against all its major pairs except the franc. The Swiss currency dropped after the SNB decision. The EUR/PLN moved above 4 zloty.

Jerzy Osiatyński from the Monetary Policy Council said, that the probability of any rate move is very low. With regard to the zloty exchange rate, he said that it is volatile and there is no need to alter it with interest rates. The MPC member has a positive view on the economy.

Today's zloty drop is rather a correction move, and profit taking after solid gains in the previous period. Very good data from the economy will result in the solid GDP growth in the first quarter. The impact of the Greek turmoil is limited. As a result, the zloty is in the position to extend gains in the long term.