Holiday trading in good spirits and with a relatively stronger dollar (currency commentary of 24.12.2019)

Stabilization on the market before the holiday season. However, the dollar remains somewhat strong, with the EUR/USD staying below 1.11. There is little change for the pound, which has remained markedly weakened over the last 12 days, with the "cable" only slightly above 1.29. The zloty in a limited fluctuation range: EUR/PLN is back at around 4.26.

Calm finish to a turbulent year

Tuesday's trade on the broad market took place with a low trading volume. In the absence of significant publications and macroeconomic events, as well as the absence of trading on some stock exchanges, changes in the major currencies were limited. In the context of recent days, the dollar remains in good shape. The main currency pair, the euro/dollar, is moving in a limited range - after yesterday's unsuccessful attempt to rise above 1.11, the EUR/USD exchange rate dropped back to around 1.1070 this morning.

In the context of the future fate of the dollar, market participants will be waiting carefully for macro data from the US. So far, there are no broader concerns about the condition of the labour market (which is in good shape) or the wider economy, so inflation readings will become increasingly important. The potential increase in PCE core inflation (which the Federal Reserve takes into account in its projections) could increase the demand pressure on the US dollar in the coming months - so far, however, the data do not indicate that the rate of price growth would suddenly accelerate, which currently limits the potential dollar appreciation.

One should not rule out (nor forget) potential fluctuations for the dollar (and the entire currency market) due to possible restrictions on international trade. Although the negotiations with China have been positive so far and the first phase of the trade deal seems to have been concluded, the last year shows that tariffs may still be an option for the US President in trade negotiations with any country or region. China's openness to international trade and the first phase of the agreement reduces, but does not eliminate, the risk of new tariffs (e.g. on imports from the EU) and they will also continue to be a real threat in the new year, which may cause significant market fluctuations.

There were no further losses at midday, but the pound is still under supply pressure after the elections. The GBP/USD was just above 1.29 today and the rapid decline from 1.35 after the announcement of the election result (less than two weeks ago) suggests that 2020 will be a repeat of 2019 for the British currency. Negotiations on a new trade agreement with the EU will most likely cause strong fluctuations in the value of the pound, although the greater advantage of the Conservatives in the British parliament (and the relatively greater marginalization of "hard Brexiteers") may increase the chances of reaching a relatively quick agreement on this issue (or before year-end at least).

The pre-Christmas market calm and the continuation of good moods (the stock market in the US at record highs, with Europe in close vicinity of their respective highs) support most of the emerging currencies, including the zloty. It should not be forgotten that slightly better than expected data from the Polish economy recently also acts as a support for the zloty. As a result, the Polish currency remains stable and within a limited range of fluctuations - the EUR/PLN after yesterday's rise to nearly 4.28, today fell back today below the 4.26. This is within the range of fluctuations of the last ten days, although this is still near the lower boundary of the last six months, which underlines the good condition of the Polish economy and currency. Later in the day, as in the last days of the year, we should not expect significant, fundamental changes in the zloty's basket, which should move within a limited fluctuation range.