Dollar remains under pressure (Daily analysis 20.05.2020)

Changes in the currency market in the morning were limited, but the US currency is still under pressure: the EUR/USD exchange rate moves closer and closer to 1.10. The volatility on the Polish zloty may increase as early as Thursday and Friday when PMI data for May will be published.

Positive sentiment is still present

Yesterday's afternoon statements by the Federal Reserve Chair and Treasury Secretary addressed to the Senate Banking Committee did not bring much change in the market. Positive sentiment continues to dominate, keeping the weaker dollar at the levels observed at the end of last week.

The main currency pair, i.e. EUR/USD, remains slightly below the 1.10 boundary (about 1.960 at midday). Continued good sentiment will most likely mean a relatively weaker dollar. Given that the market is almost immune to the disastrous macro data or the increase in tensions between the US and China, it is likely that only the data in the following weeks, which will reveal something about the recovery path, will be able to verify the current sentiment. We have to note that the prevailing sentiment has a significant portion of hard-to-measure hopes associated with the lifting of restrictions and vaccines.

Zloty is supported by the present market situation

The zloty continues to benefit from the continued good sentiment and the weaker dollar. We do not observe any fundamental changes in its valuation in the context of recent weeks. It is slightly stronger in relation to the basic currencies. The USD/PLN exchange rate moved slightly below 4.15 around midday. And although this is not a significant change compared to yesterday's closing, it has been the lowest level since mid-April.

In turn, the EUR/PLN exchange rate recorded a somewhat smaller decline than the USD/PLN pair. This is not only due to this positive sentiment (weakening of the dollar) but also to the agreement of the German and French leaders on a 500 billion EUR grant package for the EU. Although the consent of the other members of the group is required, the rather unexpected agreement between Germany and France may maintain the relatively good condition of the euro in the coming weeks.

Soon we will find out what May has brought

The calendar of macroeconomic events scheduled for the rest of the day is not rich; thus, no major currency fluctuations should be expected. Market participants can already prepare for Thursday and Friday, when we will know the preliminary PMI data from, among others, the eurozone, the UK and the USA. These will be readings for May, so they will show to some extent how the return of economic activity is progressing (in most economies the restrictions were already relaxed in May).