Once again the dollar is weaker (Daily analysis 29.06.2020)

The representatives of the service industry in the European Union have a fearful outlook on the future. The pound in relation to the zloty is the cheapest in over three months. Today, the Polish currency is strengthening, and the dollar is depreciating.

Monday on the financial markets started in quite a good mood. Probably it was a reaction of Friday's quotations when the sentiment was clearly worse, and the main market indexes in the USA were losing nearly 3% each, and the dollar was getting stronger.

Waiting for the US labour report

However, the appreciation of the US currency did not last long. The dollar was under increased supply pressure from the beginning of the Asian session. The main currency pair, the EUR/USD, increased on Monday afternoon to about 1.1287, i.e. by 0.5% above Friday's closing level. Today, no major macro events are planned, and market participants are waiting and observing conflicting signals on the pandemic. In the USA, there is a strong increase in the number of cases and the reintroduction of restrictions in some states. On the other hand, bans are being lifted in other countries and the economy is recovering.

The market also prepares for the June report on the US labour market, which we will know at the end of the week. The May data were surprisingly optimistic, which is partly due to the current weakness of the dollar and general optimism in the market (except, of course, for extraordinary actions of central banks). Currently, the market will expect confirmation of this positive trend in the US labour market. The disappointment in this context may weaken market sentiment somewhat, and in the current circumstances, this may mean a strengthening of the dollar.

Cautious service sector

Today, however, we received data from the European Commission on business sentiment in June. The trend is positive, but still it did not meet expectations. The overall economic index rose from 67.5 points to 75.7 points, 4.3 points below expectations. We have different situations in the two main areas of business sentiment. The industrial confidence index improved to minus 21.7 points, which was slightly below expectations (by 2 points). Sentiment in the services sector looks much worse. The index for this sector at minus 35.6 points was an improvement from the May minus 43.6 points, but it turned out to be 10.2 points below expectations.

The data of the European Commission on confidence in June had a limited impact on quotations on the broader market, but they underline what the market will face in the coming months. It was relatively easier and faster for the industry to get back on track. The services sector, on the other hand, is struggling with greater problems, and a return to full activity will depend on consumer behaviour in the coming months, and this behaviour remains unknown.

Pound with the lowest rate since March

This is a matter for months to come, but today the dollar's weakness improves the condition of the zloty. Although the zloty strengthened to the euro (approx. 4.47), the dollar (approx. 3.96) and the franc (approx. 4.19), these changes are still within a narrow range of fluctuations from the past three weeks. A slightly stronger strengthening of the zloty was observed in relation to the globally weakened pound. The GBP/PLN exchange rate fell to around 4.87 PLN today, to the lowest level since mid-March.

Apart from the economic issues and the effects of the pandemic, the fluctuations of the British currency may be affected by negotiations on a new trade agreement between the UK and the EU. There is still time for the agreement to be worked out. The current agreement expires on the last day of 2020, and Boris Johnson announced already at the beginning of this year that he does not want an extension.