Dollar maintains Friday's increases (Daily analysis 23.12.2019)

Limited turnover, limited changes in the value of major currencies - the pre-holiday period promises calm trading. The US currency supported by positive macro data from the USA is in good condition - the EUR/USD pair below 1.11. The pound is still under pressure - the GBP/USD pair at its lowest level for 20 days and the GBP/PLN pair still below 5.00.

China more open

The Monday before the holidays began calmly on the market. The dollar kept most of the increases generated on Friday afternoon when a series of better than expected data from the US economy came to the market. These were not the most important data in terms of the impact on the US currency but were enough to strengthen the view of the good condition of the economy in relation to other advanced countries, including the eurozone. However, until we see the return of inflation to the growth path in the US, the likelihood of a strong appreciation of the dollar is limited.

The main currency pair, the EUR/USD, moved in a minimal volatility range today. Around midday, the EUR/USD exchange rate was around Friday's closing level, just below 1.11 - about 1.1080. The turnover in the broader market is lower than usual, which, combined with the absence of major events, makes a low-volatility scenario among the major currencies in the coming days likely.

Despite the limited changes, there is still positive market sentiment, and there is little indication that it is expected to deteriorate significantly by the end of the year. Today, in the morning, the Chinese Ministry of Finance published a list of 859 product types that will be subject to lower duties than before. According to Bloomberg, last year's imports amounted to 389 billion USD, representing about 18% of China's total imports.

This is not directly related to the negotiations with the US. Still, it shows the greater openness of the Beijing authorities to the world, which may increase the chances of reaching the next phase of the trade agreement relatively quickly (before the end of 2020). The Chinese economy is also slowing down, which is also one of the factors that increase China's openness and the desire to reduce disturbances in international trade in goods.

Pound is still weak, but zloty is stable

The start of the week did not start positively for the British currency. Although the changes were not significant, the pound is still under supply pressure, despite a positive scenario for it in the elections. The GBP/USD pair fell to around 1.29660 around midday, its lowest level since December 3rd, despite highs of just over 1.35 after the announcement of the election results. Therefore, in the coming months, we can observe further notable fluctuations of the pound. The rhetoric of Boris Johnson, UK Prime Minister, will be important in negotiating a new trade agreement with the EU (the current one is valid until the end of 2020). The advantage in the new parliament that is greater than expectations (and polls) may mean that Johnson can ease the tone a little and hold constructive talks with the EU, even despite the deadline by the end of the year. As a result, it would support the British currency in the following year, which could recover the last post-election losses.

The relatively weak pound's condition means that the GBP/PLN exchange rate is still below 5.00, although only slightly (about 4.99 around midday). By the end of the year, the likelihood of significant change is limited, but the demand pressure on the pound may increase in the coming weeks. In turn, the zloty basket records very limited changes, supported by slight fluctuations observed among major currencies. Later in the day, we will also see data on orders for durable goods in the US in November (a good indication of future industrial production), which may slightly increase market volatility, especially in the case of the dollar. However, the zloty should remain in relatively good condition, supported by better (for the currency) than expected readings from the domestic economy. The EUR/PLN moves between 4.25 and 4.26. If the EUR/USD pair does not notice significant changes in the afternoon, the zloty should also stabilise around current levels.