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Dollar below in red (Daily analysis 27.07.2020)

27 Jul 2020 14:19|Bartosz Grejner

The weakness of the US currency causes the record high price of gold and the breach of the next EUR/USD exchange rate boundaries; it also helps the zloty. The USD/PLN exchange rate is at its lowest level in a year. German companies with the highest expectations for nearly two years.

Record-high reluctance to the dollar

Monday started with more records. Gold reached the highest level in history, and its price exceeded 1940 USD per ounce in the early morning. This is, of course, an aftermath of a low interest rate, a certain degree of uncertainty about the coronavirus, but also a rapidly weakening dollar.

The US currency dropped nearly 5% against the euro in the last month, with more than 2% in the last week alone. The main currency pair, the EUR/USD, reached a new, highest level since September 2018, exceeding 1.1720 around midday. The dollar is clearly weaker, not only in relation to the euro, which is in good shape. The sale of the US currency depreciation also increased against the pound, the franc or the yen, among others. In particular, the drop in the USD/JPY pair to the 105 mark reflects the current attitude of market participants towards the US currency.

The sharp depreciation of the dollar, with the relatively favourable situation in Europe related to the pandemic and the increase in economic activity, helps the zloty to reach multi-month highs. The USD/PLN exchange rate dropped to around 3.7520 today, hitting its lowest level since July 2019. The EUR/PLN exchange rate is also at the bottom line of fluctuations since the first days of June, oscillating around 4.40.

Optimism about the future is present in Germany

The zloty's strong condition is a result of not only positive internal macroeconomic data but also data from Europe. Today, the market received another dose of positive news for the euro, and ultimately for the zloty. According to data from the German ifo institute, the business climate index rose again in July, and more significantly above expectations: from 86.2 to 90.5 pts., 1.2 pts. above the economists' consensus.

Looking at the components, it is clear that the value of the whole index is pulled up by the expectations of German entrepreneurs for the coming year, which have increased to the highest level since November 2018. It is also a good sign for the Polish economy, of which Germany is the largest trading partner, looking ahead to the increase in activity in the coming months and the beginning of next year. For the zloty, this is another argument for maintaining a relatively good condition in the coming days and weeks, at least until the market becomes more uncertain due to, among other things, geopolitical tensions, the upcoming US elections or another wave of pandemics in the autumn and winter. These factors may again strengthen the dollar.

27 Jul 2020 14:19|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:

24 Jul 2020 18:38

Strong gold, strong zloty (Afternoon analysis 24.07.2020)

24 Jul 2020 15:17

July positive for Europe (Daily analysis 24.07.2020)

23 Jul 2020 15:01

The zloty again among the winners (Daily analysis 23.07.2020)

22 Jul 2020 15:48

Stronger euro and stronger zloty (Daily analysis 22.07.2020)

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