Dollar tries to pare losses (Afternoon analysis 19.06.2020)

Sentiment on the market without changes: the optimism is still present. The US currency shows signs of life: the EUR/USD pair is at its lowest level since June 3rd. The zloty, next to the Chilean peso, is the weakest currency of the emerging countries on a Friday afternoon - the USD/PLN pair exceeds 4.00 boundary.

Optimism is still on

On Friday afternoon, positive sentiment connected to the opening of economies continued to prevail in the broader market. Today, this was further supported by reports of the planned acceleration of China's purchases of agricultural goods from the US, as well as by the expected support package for EU economies.

Today, European leaders are to start negotiations on the 750 billion EUR aid programme for the economies affected by COVID-19. Overcoming a certain opposition of four countries (including Austria and the Netherlands), which were so far somewhat reluctant to pay for countries that were in a worse financial situation even before the outbreak of the pandemic, may prove to be important for the market.

Dealing with this opposition and establishing a basis for further negotiations can be positively received by the market and support the positive sentiment prevailing on the financial markets over the past weeks. Despite these good sentiments, the dollar also appreciated along with the increased activity of the US investors in the afternoon.

These were not significant changes - the EUR/USD quotations fell by about 0.25% in an hour and a half after the start of trading on the New York Stock Exchange. However, it was the lowest quotation since June 3rd and another day of the continuation of the trend of the gradual recovery of the dollar that has been observed in the last week.

A weaker afternoon for the Polish currency

The strengthening of the dollar is usually not a good sign for the zloty, and so it was today. The zloty, despite its relatively stable condition from around the midday, became next to the Chilean peso the weakest currency of emerging countries in relation to, among others, the dollar, the euro or the franc.

The EUR/PLN quotations increased from the morning level of about 4.44 to nearly 4.47, which, however, was within the fluctuation range of the previous days. However, the internal weakness of the zloty combined with the slightly stronger dollar contributed to an increase in the USD/PLN exchange rate above 4.00 for the first time since June 1st. This is not particularly surprising, as the dollar/zloty exchange rate has been moving just below this boundary in recent days.

The future fate of the zloty largely depends on what happens to the dollar in the short term. It is important to note that the US currency has seen a rapid drop in value in the short term: on May 26th, the EUR/USD exchange rate was still below 1.09, while on June 5th it reached almost 1.14 boundary (which it exceeded a few days later). Currently, the EUR/USD exchange rate is around 1.12, so most of the losses have not yet been made up. If the dollar, however, continues the path of paring the losses, this will mean that the zloty will weaken further against the main currencies.