German court gives ultimatum (Daily analysis 5.05.2020)

An unexpected ruling by Germany's constitutional court: the European Central Bank was given three months to explain the validity of the 2.7 trillion euro asset purchase programme. The dollar appreciates, but its growth potential may be limited by oil.

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

• 4:00 p.m.: April PMI for the US services sector from ISM (estimates: 37.9 points).

Euro depreciates when ECB is under pressure

The main news on Tuesday morning was an unexpected decision of the German Constitutional Court. According to Bloomberg, the court ruled that some actions of the European Central Bank (ECB) were unconstitutional. These 'actions' concern the ECB's asset purchase programme worth around 2.7 trillion EUR, which the German government should also have questioned. The decision on the ECB programme was adopted by votes 7-1.

There was not much detail by midday, but the ECB was given three months to justify that the quantitative easing programme is proportionate (the ruling does not apply to the pandemic emergency program). The case has been pending in the German court since 2015 and was initiated by EU critics, who accused the European Central Bank of engaging in economic policy (instead of conducting purely monetary policy). Although it is likely that the ECB will be able to justify the adequacy of the quantitative easing programme, this may create a certain precedent for other countries in the future to question the ECB's actions.

Given this information, the euro clearly depreciated in relation to the main currencies. The euro's quotations against the dollar fell by slightly more than 0.6 % around midday - to around 1.0826, the lowest level since last Thursday. Therefore, the entire profit of the euro earned in the last two days of the previous week was reversed at a fast pace. On Tuesday after 1 p.m. there was no reaction from the ECB. The expected communication on this issue may again slightly increase the volatility on the euro and the dollar when it appears.

Oil prices started to rise from the bottom

Once again, the USD/PLN exchange rate was just above the 4.20 boundary, gaining about 0.5 %, while the EUR/PLN exchange rate was in the range of about 4.54-4.55. The Polish currency continues to move in a minimal fluctuation range. One of the positive news for the zloty (and other emerging currencies) may be the potential ceiling in terms of the dollar's appreciation, which may be triggered by rising oil prices, for which the US currency is the settlement currency.

Restrictions on the supply on both sides of the ocean will become increasingly pronounced in the coming weeks, which, as some of the world's pandemic restrictions are lifted (higher demand), could potentially put upward pressure on oil prices.

One barrel of oil (WTI type) costs about one-third of the price before the pandemic - about 22 USD today compared to 65 USD at the beginning of January. However, the price was influenced not only by the virus but also by the OPEC price war and the breakdown of the agreement with Russia. Nevertheless, with the potential increase in economic activity, with a ceiling on the dollar, the growth potential for the zloty also increases.