Afternoon analysis 23.04.2015

Some of the Monetary Policy Members are worried with the zloty's recent appreciation. The Polish currency extended losses against all major currencies except the dollar. The euro increased despite the weak reports and the Greek anxiety.

In general recent data from the United States were rather weak. Thus, in spite of the anxiety concerning the future of Greece and weak reports from the euro zone, the common currency managed to increase against the dollar.

In March new home sales dropped to 481k – a result below 518k that was projected and less than 543k in the previous month. It was the lowest result in four months. The figures suggest that the expansion in the housing market is losing the momentum. Moreover, data from the industry also missed expectations – the PMI index dropped to 54.2 form 55.7 in the preceding period.

In addition, the labor market data missed the forecast. The number of new unemployed increased 1k to 295k – a result higher than 288k that was projected. Nevertheless, a reading below the 300k level is a sign that the labor market is still very strong. Thus, this report would have spurred a short-term move in the EUR/USD but it will not alter the fundamental factors that drive the major currency pair.

Greece in the background

Investors who are interested in the future of Greece are waiting for information concerning the outcome of meeting between the German chancellor Angela Merkel and Greece prime minister Alexis Tsipras. Although the final breakthrough in not expected, any calming comment after the talks may result in improving the market sentiment.

Few major European Union official expressed believe that there will be some form of progress in the negotiations between both sides (more on the issue in our morning commentary). In addition, the developments in the Greek financial market – an increase of stock prices and decline in the bond yields – show some improvement in the situation.

Tomorrow the eurogroup meeting in Riga will not yield the final agreement, but both sides may announce some closing in their positions. Thus, the overall market environment may even improve.

Zloty increased against the dollar

The minutes from the Monetary Policy Council meeting in April revealed, that the monetary authorities are rather optimistic in their view on the outlook of the Polish economy and the inflation growth.

However, the MPC cited some threats for the growth – the coming tightening from the Federal Reserve, the ongoing quantitative easing of the European Central Bank and the Ukrainian crisis. Moreover, some policy makers noted that the zloty's recent appreciation may negatively affect the GDP growth in the future.

The remarks on the zloty's appreciation would have added to today's zloty's weakness. Still, the stance of the MPC towards the zloty's level is rather neutral, as it has been outlined by the National Bank of Poland president Marek Belka. If the zloty is still far above the 3.80-3.90 range against the euro, the probability of the central bank intervention is rather low – thus there is still very room for the currency's appreciation. The zloty remains in the position to extend gains.