Limited changes, but uncertainty remains (Afternoon analysis 22.05.2020)

Friday afternoon did not bring any significant changes in the market. To some extent, it was also the result of an empty macroeconomic calendar in the second part of the day, partly because the market seems to have already discounted the disastrous data from the period of economic closure and looks more into the future, expecting more indications as to how the trajectory of recovery will look like.

The dollar's appreciation is on hold - for now

On Friday, we observed a slight deterioration in market sentiment, but this did not deepen in the further part of the day. The Chinese authorities' plans to impose a new security law in Hong Kong reduced the appetite for risky assets, but these were not fundamental changes. Geopolitical risks have undoubtedly increased, although the hope that the two powers will maintain the first phase of the agreement and work on the next one are holding back a strong increase in risk aversion.

This increase in tension between the US and China was mainly behind today's strengthening of the dollar. Although the EUR/USD exchange rate fell by about 0.5%, the decline stopped at a borderline of about 1.09. This is lower than the levels above 1.10 observed yesterday, but still clearly above those of a week ago (even below 1.08).

The globally weaker dollar within the past one or two weeks perspective (despite paring some of the losses today) still allows the zloty to maintain its relatively good condition. Today, the EUR/PLN quotations were in the range of approx. 4.51-4.53, with the exchange rate in the afternoon closer to this lower limit. In a slightly broader perspective, it is also the lower limit of the last two months' quotations.

This is still far from the pre-pandemic rates (approx. 4.32-4.33), but the combination of the relatively weaker dollar and the hopes associated with lifting restrictions as well as the virus vaccines clearly help the Polish currency. However, the aforementioned geopolitical risk should be taken into account, which may be further increased by the upcoming US presidential elections. Although the escalation of US-China relations is a scenario that does not necessarily come true, in the short term, the negative information coming from these powers may strengthen the dollar somewhat and weaken the zloty.