Dollar goes even lower in red (Daily analysis 18.08.2020)

One euro is close to 1.20 USD, the level that was last seen in early May 2018. The USD/PLN exchange rate, in turn, is falling below 3.67, the lowest in nearly two years. Merkel rules out lifting the restrictions as the number of new cases of the disease in Germany increases sharply.

The dollar depreciates

The weak dollar is nothing new lately, and its rapid and strong weakening is the story behind the last month and a half. Today there were no new macroeconomic data published or significant events from the geopolitical or pandemic front - but the dollar also marks Tuesday. The US currency has reached new weakness records against the main currencies, which strengthened its depreciation even before the start of the session on the New York Stock Exchange.

The EUR/USD exchange rate exceeded the 1.19 boundary today, reaching nearly 1.197, increasing by 0.6% compared to yesterday's closure. However, if we look at the last four weeks, the loss of the dollar to this point is 4.3%. It is also very close to the key level of 1.20, above which had been recorded in the first week of May 2018.

The zloty and the koruna are the winners of the past month

Looking back over the last four weeks, the zloty and the Czech koruna appreciated the most out of emerging countries' currencies against the dollar - about 6.7%. Today, the Polish currency was gaining about 1%, and it also reached new records against the dollar: the USD/PLN exchange rate fell below 3.67 for the first time since the last days of September 2018.

A further weakening of the dollar in the global market and an increase in the EUR/USD exchange rate above 1.20 may also push the USD/PLN quotations down towards 3.60. However, the chances of further falls below these levels seem limited now. The zloty is also still supported by good market sentiment and still relatively low risk aversion.

This also has a positive impact on the zloty's relations with other main currencies - these are not two-year value records as in the case of the USD/PLN, but the lower limits, looking at, e.g. the EUR/PLN pair (approx. 4.38) or the CHF/PLN pair (approx. 4.06).

Restrictions in Germany will stay

The sharp depreciation of the dollar and the continued strong euro are happening on the day when we receive negative reports from the eurozone. Yesterday, Germany recorded the biggest daily increase in coronavirus cases in four months, and in the last three weeks alone, the number of daily cases has doubled. Chancellor Angela Merkel, quoted by Bloomberg, also ruled out relaxing the restrictions this afternoon, saying in Düsseldorf that this trend "should not continue and we need to contain it".

Observing the behaviour of the euro and the dollar, or the equity market in its still good shape, one can see that the market is not reacting negatively. Indirectly, this is due to the fact that nobody expects a second "lockdown", as well as to the liquidity provided by central banks to the market. The market is, to some extent, detached from fundamental realities (especially the equity market) due to central bank actions.

However, the recent rapid rise in the number of cases in Europe may cause a somewhat more cautious attitude among market participants, potentially limiting the weakening of the dollar and increasing somewhat risk aversion. As a result, it may also act as a restraining factor for further increases in the value of the zloty, and it will be difficult to strengthen even more from current levels against the main currencies, at least in the coming days.