Dollar the strongest in 3 weeks (Daily analysis 20.01.2020)

This week is full of important macroeconomic data from the UK, the eurozone and Poland. Today, currency exchange rate fluctuations are limited. The gradual appreciation of the dollar with a negative impact on the zloty's basket: the EUR/PLN pair is around 4.25 PLN.

Other currencies would like to be in the dollar's shoes

The week started with exceptionally calm quotations. Without significant events during the weekend and a practically empty macroeconomic calendar on Monday, deviations from Friday's closing levels on the broader market were minimal until midday. However, the gradual appreciation of the dollar continues. The EUR/USD pair fell to around 1.1082 this afternoon, the lowest level since December 26th last year.

This is a result of the macroeconomic data from the US economy, which still indicate its good condition. Although inflationary pressure and the prospects for interest rate changes are still not visible, the condition of the US economy, relative to other developed economies, supports the dollar.

Week crucial for pound

By the end of the week, on Friday, the preliminary data of the PMI indexes for the euro area will be published. The market expects a slight improvement, in line with expectations of a slow recovery of the eurozone economy, especially the industrial sector.

Also, this week might be decisive for the pound. The GBP fell below 1.30 USD for the first time in a week and is close to the lower quotation mark since the Holiday season. Current week's figures include data from the UK labour market, retail sales and PMI indexes. If the data turn out to be below consensus, it may strengthen the argument for interest rate cuts at the Bank of England meeting at the end of January.

Currently, the market estimates the probability of such a scenario to be around 70%. The evaluation of participants is not, of course, equivalent to the fact that the British central bank will actually do it. Not so long ago nobody considered such a move in January. Instead, it was pointed to the middle of the year (meeting at the end of May). However, if the data support the argument that the UK economy is weakening faster than expected, the supply pressure on the pound may increase slightly.

Euro with the highest value in 10 days

The globally stronger dollar gradually weakens the zloty basket. The Polish currency's quotations in relation to the main currencies indicate a weakening of the zloty in recent days, which, however, is almost entirely due to external factors. Today, the EUR/PLN exchange rate moved within a narrow range of approx. 4.238-4.246, reaching its highest level in 10 days. The USD/PLN exchange rate rose to 3.83 PLN in the morning. Further appreciation of the dollar may weaken the zloty, although the good condition of the Polish economy should support it. Macroeconomic data from the Polish economy (including retail sales and industrial production) will come later in the week, which may additionally support it.