Dollar below in red again (Daily analysis 5.08.2020)

After a brief moment of respite, the market has no mercy for the dollar, which again is close to being in the weakest against the euro for over two years. The Czech koruna, the Hungarian forint and the Polish zloty are the main winners of last month.

Current situation does not support the dollar…

At Tuesday midday, the dollar's weakening continued. The EUR/USD quotations are back close to 1.19 and the highest level since May 2018. Around midday, the main currency pair reached about 1.1860, while still on Monday during the day it fell even below 1.17.

Whether it is 1.17 or 1.19, these levels of the EUR/USD pair represent a weak dollar. The continuing positive sentiment in the financial market (having little to do with the state of the economies), which is also supported by the actions of central banks, helps the zloty.

... but it favours emerging countries currencies

The zloty, given its favourable external and internal conditions over recent weeks, was one of the best-performing currencies of emerging countries. Over the past month, compared to the dollar, the euro, the franc or the pound, only the Hungarian forint and the Czech koruna have gained slightly more from the zloty.

In the month, the zloty gained about 1.6% against the euro, despite the fact that the European currency has been globally strong recently. As much as 7% in the same period, the Polish currency made up for the dollar, and if we look at the previous three months, the zloty's profits amount to as much as 12%. The weakening of the zloty from the initial lockdown period is largely important here, but even if we eliminate the impact of the pandemic and take the last year's quotations, the Polish currency has strengthened against the USD by 4%.

The strong condition of the zloty, as well as other currencies from the region (the forint, the koruna, the lei), is not only due to the weakening of the dollar. A favourable factor was the agreement reached in Brussels in July on a 750 billion EUR fund to rebuild European economies.

The zloty also benefits from the fact that at the beginning of the pandemic Poland was in a relatively better economic situation than other countries, and is likely to come out of the crisis in slightly better shape than more developed economies, which may be a positive stimulus for the zloty in 2021.

Meanwhile, this afternoon, the USD/PLN exchange rate is just above the 3.70, and the EUR/PLN exchange rate is about 4.39. Increased supply pressure on the dollar in the following hours may also further improve the basket of zloty against the main currencies and further decrease the USD/PLN and EUR/PLN rates.

PMI in the spotlight

Today, the final PMI data on services sector activity in the eurozone for July were released. They were not as good as the industry data, which exceeded the initial estimates, but in services, the aggregate PMI indexes were also slightly higher than the initial ones.

In the afternoon, in turn, the PMI index data for industry in the USA will be revealed, which may cause a little more volatility in dollar quotations. However, the market is more focused on Friday's report on the US labour market. Until then, we will probably not observe any significant changes.