Dollar strongly appreciates (Daily analysis 12.02.2019)

Reports of foreign trade between China and the US and progress on budget negotiations in the US improve the global sentiment, but they are not enough to stop the EUR/USD falls. The dollar reached its highest levels in relation to the zloty in almost two years before noon. The dollar reached the highest levels in relation to the zloty in almost two years. The euro in the range of 4.32-4.33 PLN.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Better sentiment on the market

Already during the Asian session, sentiment on the broader market was relatively good. There will probably not be another shutdown in the USA, so the risk to the US economy due to the forced leave of about 800,000 federal workers should not be repeated in the following months.

The trade conflict between the USA and China gives more positive than negative information. Contrary to previous reports, a meeting of the presidents of the two powers may take place soon. There is also a chance that the next round of negotiations will extend the period of not introducing additional duties on Chinese goods. As a result, the March 1st cut-off date could be postponed to a more distant future, which is a good signal.

In Asia, emerging market currencies were appreciating against the dollar. The Indian rupee or the Chinese yuan were also stronger. However, optimism did not reach the currency market in Europe. The dollar in relation to the euro increases and is approaching its highest levels in several months.

The eurozone is clearly considered a region with many problems, with no increase in interest rates in the coming quarters, even if the global situation were to stabilise.

The eurozone is suffering from internal problems. These are issues linked to a very abrupt slowdown in economic growth and weak prospects. In addition, the political situation in Italy remains difficult and more and more talks are being made about early elections in Spain. EP elections also pose a threat to global capital, which may fear that there are relatively many potential problems in the short and medium term.

Also, do not forget about the Brexit. The chaotic exit of the UK from the EU is not a baseline scenario. Investors clearly expect a positive solution, but this risk exists. Not only is the EU weakened by internal problems, but it also has to deal with the UK, whose exit does not add a stabilising element to the Community.

As a result, the uncertainty and the relatively low valuation of the euro may persist for a relatively long time even if external issues are resolved (trade dispute with China and shutdown in the US).

Dollar the strongest in almost 2 years

The morning drops in the EUR/USD pair to approx. 1.1260 resulted in the dollar's quotations moving against the zloty up to approx. 3.85 boundary. These were the highest levels of the USD/PLN in May 2017. The zloty is also weak in relation to the euro (range 4.32-4.33 PLN) and, e.g. to the forint. Today, the Hungarian currency appreciated due to the high reading of core inflation. In January, in annual terms, it reached 3.0%, which is the highest value in 7 years. This may lead the monetary authorities in Budapest to decide to increase interest rates in the following months.

The zloty may still be under pressure. In Poland, there is no chance to raise interest rates (and there is no need to do so), and the negative trends in the eurozone may continue for a more extended period of time, which will continue to have a negative impact on the EUR/USD, and thus on the zloty as well. On the other hand, one should not expect panic on the zloty. The Polish economy is in good condition, which will not be conducive to interest rate cuts. The current account is also relatively balanced. These elements should prevent PLN from a deeper depreciation.