Afternoon analysis 23.02.2016

The Swiss franc increased on the SNB President’s remarks. Risk aversion prevailed in the markets. Strong volatility of the British pound. The zloty dropped due to sentiment deterioration in the broad market.

On Tuesday, the Swiss franc increased. The currency increased after the speech of Swiss National President Thomas Jordan (according to the Reuters agency). He said that the unconventional measures of monetary policy can not be provided endlessly. Jordan cited negative interest rates that can't be lowered to the lowest level without spurring fly to cash at some point. Moreover, Thomas Jordan stressed that the monetary policy can't solve every economic issue.

Jordan made this statement before the key ECB meeting in March, which is when the Frankfurt-based institution is expected to add to the stimulus. This factor may increase pressure on the Swiss currency. Today the franc dropped to the lowest level since the 22nd of January.

Pound's volatility

Last week, Prime Minister David Cameron achieved an agreement with the European Union on the UK's special status. The major issue was social support for immigrants and tight integration within the EU. Cameron accomplished his goals and as a result, supports staying in the EU. The referendum date was set on the 23rd of June.

In his latest speech, David Cameron stressed the possible risk to the UK economy due to leaving the EU. On Tuesday, he was supported by CEOs of the largest UK companies. On the other side, Boris Johnson, the Mayor of London, supported the vote for leaving the EU.

The pound dropped to the lowest level in seven years against the dollar. It is very likely the pound's volatility will remain heightened. Significant factors that may affect the currency, are the latest polls and statistics that show that important people are polarized. The market will waver until the vote.

Stronger QE case

Two weeks before the ECB's crucial meeting, ECB President Mario Draghi announced that the meeting may bring more stimulus. The weakness of the global economy and the situation in the commodity prices, limit the probability of the ECB meeting its inflation goal. As a result, the QE amount may be increased and the deposit rate may decline.

Today's data from Germany supported a similar scenario. The Ifo index, which is the most important sentiment gauge in Germany, dropped to 105.7 against the 106.8 forecast. It was yet another report that suggests an ongoing deterioration of the German economy. Yesterday, the PMI reports from the European countries showed some weakness.

As a result the EUR/USD was under pressure. The major currency pair dropped to the lowest level since the beginning of February.

Zloty declined

The CSO released the latest data on the labor market. The unemployment rate increased to 10.3 percent against 9.8 percent in the prior month. It was in line with the forecast. The general assessment of the employment situation remains positive.

Jerzy Osiatyński from the Monetary Policy Council, said that the economic situation is good (according to Newseria). Osiatyński cited export growth. The major issue is deflation, but the factors responsible for the situation are beyond the impact of the MPC. The statement supported the consensus to leave interest unchanged.

Łukasz Hardt from the MPC, supported a similar view (according to Bloomberg). He sees no reason to cut rates. According to Hardt, the major risk factors are the British EU referendum, the Chinese slowdown and the decisions of the major central banks (the Fed and the ECB). He said the Polish economy is well balanced. Łukasz Hardt said that it is very important to preserve central bank independence.

The zloty dropped on the heightened risk aversion. The Polish currency posted significant losses against the franc. The CHF/PLN increased to nearly 4 zlotys against today's low, which was below 3.95 zlotys.