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Dollar still depreciates (Daily analysis 31.07.2020)

31 Jul 2020 16:07|Bartosz Grejner

The eurozone's GDP falls by 12.1% on a quarterly basis as expected. Demand for the dollar remains weak: the EUR/USD exchange rate reaches its highs since May 2018, and the USD/PLN exchange rate falls for the first time below 3.70 since October 2018.

The US reaction not in time

On the last day of the week, another record of dollar weakness was observed. The EUR/USD quotations increased above 1.19, to the highest level since May 2018 this morning. In later hours they moved away from this level, but still remain close to around 1.1850. The strength of the euro generates the increases, but the weaker condition of the US currency can also be seen if we look, for example, at the Bloomberg dollar index, which also includes emerging country currencies in its basket. It also indicates that the dollar is the weakest since May 2018.

Today, the GDP data from the eurozone for the Q2 of the year were published, analogous to the US yesterday, but they have a limited impact on what is happening on the market. It was known that Q2 will be disastrous, and these readings confirm this: the eurozone's GDP decreased by 12.1% compared to the previous quarter, in line with market expectations. However, the current weakness of the dollar is largely due to the temporary imbalance in dealing with the pandemic between the US and the rest of the world, including Europe.

In Europe, the leaders of countries have recently reached a consensus on a fund to help economies combat the effects of a pandemic, and the very effects of actions taken to deal with it have had positive effects (except for local outbreaks), in the US we are now dealing with the reverse situation.

Restrictions in part of the states have been re-introduced, the subsequent phases of opening have been postponed to some extent, so we can see a halt in economic activity growth already in July. In addition, fiscal issues remain unresolved: Republicans and Democrats need to agree on a fiscal stimulus and the differences between them are counted in trillions of dollars.

The consensus is likely to be reached, but media reports from both sides indicate that the differences are still very significant. In addition, some of the aid programmes expire soon - today's unemployment aid, and not further than yesterday, we saw the second consecutive week of increases in the number of initial jobless claims.

This temporary imbalance works against the dollar for the time being, but it also supports, among others, the zloty. The Polish currency is still in good condition, with the USD/PLN exchange rate falling below 3.70 for the first time since October 2018. The EUR/PLN exchange rate fluctuates around 4.40 and the likelihood of more significant changes today than these levels is limited.

31 Jul 2020 16:07|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:

30 Jul 2020 17:18

US: an increasing number of unemployed and record fall in GDP (Daily analysis 30.07.2020)

29 Jul 2020 15:52

Waiting for this evening with the Federal Reserve (Daily analysis 29.07.2020)

28 Jul 2020 18:21

A cloud of pessimism over the United States (Afternoon analysis 28.07.2020)

28 Jul 2020 15:41

Slight change but the dollar is still weak (Daily analysis 28.07.2020)

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