Dollar slowly pares the losses (Daily analysis 2.09.2020)

It is difficult to talk about the US currency's appreciation given the recent weeks, but the dollar is gaining about 0.4% today around midday, moving away from the 1.20 boundary per the EUR/USD pair observed yesterday. The zloty depreciates: the USD/PLN pair is nearly 3.73, and the EUR/PLN exchange rate is about 4.43.

Data support the dollar

Since yesterday afternoon, we have observed a slight rebound in the recent trend of the dollar weakening. This is influenced by two factors: reaching the "key" level of 1.20 per the EUR/USD pair and surprisingly good data of the ISM index in the US industry (its highest level since November 2018). The EUR/USD exchange rate was around 1.1860, 0.4% below yesterday's closing.

It is still too early to talk about the dollar's appreciation since only in mid-July the euro/dollar exchange rate was around 1.13-1.14. However, the latest macroeconomic data from the US economy were mostly positive, although the dollar has so far reacted to them to a limited extent.

However, if positive readings continue to come in, exceeding market expectations, the dollar can also get a little bit more wind under the wings and react further. Probably only a permanent drop of the EUR/USD exchange rate below 1.17 could open the way for at least a short-term appreciation of the US currency.

In the coming weeks and months, there will be events that could potentially change the situation on the market, such as the US presidential elections, the autumn wave of coronavirus, the return of restrictions, or a correction on the trading markets. All these factors can support the dollar.

What does this mean for the zloty?

By the time those events take place, the market will have another dose of important publications from the USA in the coming days. Today the data on ADP's estimates of employment change in the US will be released, and tomorrow the ISM index for the services sector will be published for August. Friday will probably be the most important day for market participants in connection with the publication of the report from the US labour market for August.

Therefore, the second part of the week may increase the dollar fluctuation. If the planned publications confirm the positive trend, the dollar may pare more losses, thus increasing pressure on the currencies of emerging countries, including the zloty.

Today we can observe the impact of the appreciating dollar on the basket of the zloty. The USD/PLN quotations from yesterday's minimum of 3.655 increased today to 3.73, while the EUR/PLN from 4.38 to nearly 4.42. The weakening of the zloty against the main currencies may potentially intensify somewhat if the planned publications from the US for the next few days prove positive for the dollar.