A strong appreciation of the zloty: the pound is quoted below 5 PLN (Afternoon analysis 26.05.2020)

The positive sentiment continues at its best. Optimism about lifting restrictions, hopes for vaccines and surpassing symbolic barriers support an increased appetite for risk. The dollar clearly loses, while the zloty gains due to positive sentiment.

Race for vaccine and geopolitics

The worst is over. This conclusion could be drawn by looking at today's market behaviour: another day of market growth, the sale of the dollar and increased demand for emerging countries' currencies highlighted a greater appetite for risk. Optimism comes primarily from the gradual lifting of restrictions in the world and also from the hope that the COVID-19 vaccine will come quickly.

Although this euphoria seems a bit premature and too strong, it is also not completely unjustified. The world's largest economies have invested enormous resources in creating a coronavirus vaccine. The White House administration has called the operation to speed up the process "Operation Warp Speed". China is also participating in this race to create the vaccine as soon as possible, and President Xi has announced that their vaccine will be globally available (a probable pinch to the US, which was the first to seek the vaccine).

Possible tightening of rhetoric

This leads to another issue that the market is currently - at least for the time being - ignoring: geopolitics. China has five vaccines in different phases of human testing (most of all countries). Creating an effective medicine would improve China's position in the international arena, especially in relation to the USA. And China's relations with the US seem to be deteriorating as the US presidential election approaches (November).

The current potential threat to further tighten rhetoric between the powers is the Hong Kong issue and the imposition of a new security law by China. The increase in tension between the US and China is currently not "in price" and is likely to be something the market may have to price in the weeks and months ahead.

Only optimism

Today, however, optimism is valued above all, which was also strengthened by approaching and/or exceeding certain technical limits. The dollar lost to most currencies today. The EUR/USD exchange rate reached almost 1.10 in the afternoon (about 1.0990 in 1.5 hours after the start of trading on the New York Stock Exchange). The main US stock exchange index S&P500 exceeded 3 thousand points and the 200-day moving average, and the last time it was above its level was in late February.

With these good sentiments, the zloty was also gaining. The Polish currency has been the strongest in relation to the euro (approx. 4.43 PLN), the dollar (approx. 4.03) and the franc (approx. 4.16) since mid-March; the pound, in turn, has for the first time fallen below 5 PLN (approx. 4.98) since the last days of March. Changes in the zloty's quotations are mainly due to external factors, which are not necessarily permanent. Increased risk appetite may remain for some time as the market looks beyond the horizon of the pandemic, but increased geopolitical tensions, commercial issues or macro data that will shed more light on the shape of the return path may quickly modify this positive sentiment.