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Another day of dollar weakness (Daily analysis 29.05.2020)

29 May 2020 14:47|Bartosz Grejner

The globally stronger euro and the weaker dollar and the franc keep the zloty in a relatively good condition despite the decision to cut interest rates made by the National Bank of Poland. However, it has made the Polish currency more sensitive to worsening sentiment.

The dollar breaches next boundaries

Trading on Friday morning was marked by the weakening of the dollar. Basically, it is the story describing this week. The euro/dollar quotations rose to about 1.1140, and this level has been around the upper boundary since mid-March. Not only is the dollar clearly under sales pressure but also the euro is much stronger and in relation to the Swiss franc it exceeded 1.07 mark today, the highest since the first week of February.

Optimism persists due to the gradual opening of economies, as well as monetary and fiscal stimulation. So far, the market has practically ignored the disastrous macro data or the increase in geopolitical tensions. This afternoon there might be some verification of this sentiment: as President Donald Trump planned a press conference to announce what the White House administration intends to do about China.

Given the fact that elections are approaching and both Democrats and Republicans are on the same side on this issue, a softening of rhetoric against China is unlikely. Attention may be drawn away from China by domestic political issues. However, if market sentiment worsens, the dollar can pare losses at a rapid pace, especially as it is in a weakened condition.

The zloty is stable after the NBP decision

The unexpected decision to cut the main interest rate by 0.4 percentage point by the National Bank of Poland (NBP) did not cause any significant changes in the valuation of the zloty, which is still mostly dependent on external factors. The globally weaker dollar resulted in a drop in the USD/PLN exchange rate below 4.00 for the first time since mid-March, and the Swiss franc, which is under pressure, allowed the CHF/PLN pair to remain around 4.15-4.17, i.e. close to the lower limit also since mid-March.

Unlike the USD/PLN exchange rate, the EUR/PLN pair did not depreciate. The globally stronger euro kept the rate at around 4.45-4.46. However, after the Polish MPC's decision, the zloty is likely to be more sensitive to changes of sentiment in the global market, and its relatively good condition is maintained by the weaker dollar. However, if sentiment deteriorates due to, among other things, increased tensions on the US-China line, the Polish currency may also depreciate against the euro.

29 May 2020 14:47|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

28 May 2020 17:37

National Bank of Poland surprises (Afternoon analysis 28.05.2020)

28 May 2020 14:59

The zloty appreciates in relation to the dollar (Daily analysis 28.05.2020)

27 May 2020 18:18

The dollar and the franc depreciate, the zloty appreciate. Geopolitics in the background (Afternoon analysis 27.05.2020)

27 May 2020 14:48

The EU stimulus package improves sentiment (Daily analysis 27.05.2020)

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