Afternoon analysis 25.05.2015

The euro was stable in spite of the Greek uncertainty. Investors are waiting for key economic reports. The zloty recouped the losses after the voting results.

The outlook for Greece going bankrupt is getting more real. The Greek interior affairs minister Nikos Voutsis said on Sunday the country is not going to pay the International Monetary Fund bill as the government has no money. The IMF payment amount is 300 million euro due 5th June. In the next month Greece has to pay as much as 1.5 billion euro to the IMF (more on the issue in our morning commentary).

A wide look at the latest news from Greece is worrying. In the previous week, the German finance minister Wolfgang Schaeuble said the Greek government would consider an introduction of parallel currency. The proposal was viewed as a proof that Germany is willing to agree that Greece will eventually leave the euro zone. In addition, the Riga summit has not yielded any breakthrough except reiteration that there is ongoing progress in negotiation process.

Given the newest information, the Greek finance minister Yanis Varoufakis saying that the negotiations are completed in three quarters is not very credible. In the meantime, the prime minister Alexis Tsipras expects the international creditors to soften their expectations on reform program as the nation is not able to handle more austerity.

Stable EUR/USD

On Monday the major currency pair is rather stable. After a severe drop on Friday, today the market is less volatile. The situation was caused by the fact, that the major European markets and the US market is closed due to holiday.

Still, the return of investors will result is the euro extends the drop against the dollar. On Friday, the Federal Reserve president Janet Yellen has presented a less dovish stance than anticipated, given poor reports from the US. As a result, although there will be no interest rate hikes in July, the fall term is sill considered.

Moreover, the swelling anxiety concerning the future of Greece will pressure the euro. The European Central Bank may add to the pressure if the Frankfurt-based institution decides to impose more severe terms on liquidity provisions for the Greek banks.

The ECB until no has refrained from a similar action due to the fact, that the policymakers were saying that the negotiation process is moving forward. Now however, the Greek politicians are saying about not paying to the IMF, what may push the ECB to use more decisive tools.

The zloty recouped losses

An unexpected result of Sunday voting negatively affected the zloty. Firstly, the Polish currency posted losses against all its major pairs. Still, it the second part of the day the zloty managed to recouped its earlier losses against the euro.

Before the voting, we said that the impact presidential election will be limited and short. The Polish president has no important influence on the economic issues. Thus, a more important even will be general election within five months.

The volatility in the zloty market is quite high. Given the uncertainty concerning Greece and weakness of the latest data from the Polish economy, the zloty will remain under pressure in the coming days.