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Demand for the euro still present (Daily analysis 14.09.2020)

14 Sept 2020 13:11|Bartosz Grejner

The euro gets slight support in the form of somewhat better than expected data on industrial production in the eurozone. The zloty is stable, the pound pares losses, but is exposed to more significant fluctuations and further depreciation.

Good start of the new week for the euro

After a rather exciting end of last week, owing to the events with the European Central Bank (ECB), trade on the first day of the new week went relatively smoothly until midday. The main currency pair, i.e. the euro/dollar, was about 0.15% above Friday's closing, at about 1.1860.

Christine Lagarde, President of the ECB, has chosen not to refer in a more hawkish way to the rapid growth of the euro, giving the "green light" for the continuation of the prevailing trend of recent weeks. A little later, the head of the ECB's economists, Philip Lane, was more direct about the impact of a stronger euro on future inflation. In the end, this did not change much, and the dovish message from Lagarde and the fact that the ECB is only "monitoring" the euro does not give participants a solid argument to sell off the currency.

In the morning, Eurostat published data on industrial production in the common currency area. Although these data were for July, so probably they are "historical" for the market, they presented a slightly more positive picture of the sector than expected. The industrial production fell by 7.7% per year, by 0.4 percentage points below the market consensus, and the June data were also revised upwards by 0.3 percentage points. The month-on-month increase was 4.1%, slightly below expectations at 4.2%, but the June growth was also revised upwards from 9.1% to 9.5%.

These data may not currently have a significant impact on the euro's quotations. They add up to the arguments for maintaining high demand for the euro. Lack of significant changes up to midday on the currency market also stabilized the zloty. Compared to Friday's closing, changes in relation to the main currencies were limited. The EUR/PLN exchange rate fluctuated around 4.44-4.45, the USD/PLN exchange rate around 3.74-3.75 and the CHF/PLN exchange rate around 4.13.

A slightly larger change (about 0.5%) was observed in the case of the GBP/PLN pair, whose exchange rate rose to 3.83. This is, however, only a small response to the strong falls in the pound's value from the previous days due to the worsening sentiment surrounding the new UK trade agreement with the EU. As a result, an increase in the probability of a "hard Brexit" may predict further strong fluctuations of the British currency and potentially increase supply pressure if negative information from this front continues to come in (talks between the parties resume this week).

14 Sept 2020 13:11|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:

11 Sept 2020 18:06

Inflation in the US is heading for the pre-pandemic level (Afternoon analysis 11.09.2020)

11 Sept 2020 12:00

ECB mild at the conference, sharper on the blog (Daily analysis 11.09.2020)

10 Sept 2020 17:22

The ECB carefully monitors the euro (Afternoon analysis 10.09.2020)

10 Sept 2020 11:38

The European Central Bank will cause strong fluctuations (Daily analysis 10.09.2020)

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