Afternoon analysis 23.03.2015

The zloty in a good shape at the beginning of the week. The euro increased in spite of uncertainty concerning Greece. The dollar pressured by comments from the Fed's James Bullard.

The euro has kept momentum after the best weekly gains since 2011. The common currency increased against the dollar above 1.09 after some weakness in the beginning of today's session.

Today prime minister Alexis Tsipras is scheduled to meet chancellor Angela Merkel in Berlin. Greek politician will try to convince German government to allow its country to use money from its bailout program.

If Athens does not receive next disbursement from bailout program, the country may face bankruptcy within few weeks. Alexis Tsipras explained his point of view in a letter send to the German government, which was published by the Financial Times.

Spanish warning

The Podemos party success in local election sparked some risk that the anti-austerity party may take the power in this year voting later this year. The Podemos is the Spanish equivalent of the Greek Syriza – the party that revoke the specter of the euro zone dismantle.

Spanish bonds dropped today after investors assessed the impact of the elections. The opinion polls show that the Podemos may take over the power in elections later this year. The spread of anti-austerity parties among the euro zone countries with fiscal problems poses a potential source of political risk to the common currency.

Bullard hit the dollar

James Bullard in an interview in CNBC warned that the volatility may hit emerging markets as the Federal Reserve pursue its plan to tighten monetary policy. Similar developments were observed in mid 2013 when remarks that the Fed may shrink its quantitative easing program pressured emerging markets currencies.

Current strength of the dollar is mainly due to the aggressive policy of the European Central Bank that has recently launched its quantitative easing program. In turn, the impact of the expectation for the Fed to raise rates is limited.

Moreover, Bullard sees current dollar index level – that measures dollar moves against major currencies – as close to its fair value.

Today's data from the US housing market missed expectations. The number of houses sold in the secondary market stood at 4.88 million – more than 4.82 million in the previous month, but slightly less than 4.91 million projected.

Strong zloty

The first session of the week is positive for the zloty. The Polish currency posted solid gains against all its major pairs except the frank. The pound dropped to the lowest level since mid February and the euro declined below 4.11 zloty – the lowest level since June 2014.

The zloty has exploited sentiment improvement in the US stock market and very good performance of the EUR/USD. Moreover, the NBP president Market Belka has made some remarks on the currency level and signaled that the central bank will not take any actions even if the EUR/PLN drops below 3.90 zloty. Earlier, the MPC has signaled that the zloty's appreciations is a potential threat for the economy. However, Belka's comments suggest a broader tolerance for the zloty increase.