On the one hand, the fear of risk, and on the other hand, the Federal Reserve's extraordinary actions are making the US currency appreciate even more. Today, the dollar has reached its historic highs. It may break further records in the coming weeks.
The fear of the impact of the COVID-19 virus has rocked the economic markets. Investors turned their backs on the most risky financial instruments. The markets in all parts of the world incurred record losses.
The dollar (USD) appreciates. The first reason for this is that, just like the Swiss franc, the yen or gold belongs to the so-called safe havens, i.e. assets for which the demand grows when there is anxiety on the markets. Unlike the dollar, not all "safe havens" break records when fear of a pandemic dominates the world. The gold has recently been valued at around 1,700 USD per ounce, while today, subject to significant fluctuations, it costs around 1,480 USD per ounce because investors prefer to have cash rather than ore at their disposal.
The Federal Reserve has also helped to increase demand for the US currency by lowering interest rates in the US and announcing a 700 billion USD program, of which 500 billion USD is to be spent on buying Treasury bonds. This has raised the yields of US bonds and therefore attracted investor interest.
The highest index in history
How much the dollar has gained in value can be demonstrated by comparing it with, for example, the Australian dollar, which today was the weakest in relation to its US counterpart since 2003. The pound is even weaker in such a comparison. Today, the British currency is as weak against the dollar. It has not been so weak since 1985.
"The most up-to-date strength of the dollar is reflected in its index prepared by Bloomberg, a world agency that compares the US currency with other currencies, including those of emerging countries, such as Poland. The index has risen to the highest level since its creation in 2005," says Bartosz Grejner, Conotoxia analyst.
Will zloty defend that barrier from 2000?
The Polish currency is not an instrument that investors are interested in at a time of risk. This is one of the reasons why today the dollar in relation to the zloty is the strongest since mid-2016, when it reached the level of about 4.28 PLN.
However, only a few Polish groszy are missing from the value of four years ago. "Further uncertainty about the coronavirus, which is unlikely to disappear within two months, may cause the USD/PLN exchange rate to move towards the highs of 2000, i.e. about 4.74 PLN, and even further towards the key level of 5.00 PLN," says Conotoxia analyst. "As long as the financial markets are not able to estimate when the negative impact of the coronavirus on the economies will end, the dollar's appreciation and weakening condition of the zloty may remain a current topic and problem for the Polish currency," he adds.