Reports from the USA on record numbers of coronavirus cases have worried the market: the dollar appreciates, and the zloty is one of the weakest EM currencies: the USD/PLN is approaching 4.00 and the EUR/PLN pair reaches 4.47.
A threat to the growth path
Thursday was marked by a stronger dollar. This is the second day in a row when we see a rather stronger dollar. Rather, because the value of the dollar in relation to the euro has not even reached the levels we observed on Monday.
Today, the EUR/USD quotations fell to 1.12, about 0.4% below yesterday's closing. This improved condition of the US currency in today's trade is due to increased concerns about the path to recovery from economic closure and recession in the US. Market anxiety increased after some of the US states (which have already relaxed their restrictions) reported record increases in the number of COVID-19 cases yesterday, i.e. Florida, California and Texas. In addition, New York City has introduced a 14-day quarantine for visitors.
The market is reluctant to accept the idea of re-closing economies, which could be devastating for economies. But even if restrictions in those areas where there are increases in disease will not be re-imposed, consumers will most likely continue to be cautious - and that means problems for a rapid (and above all sustainable) recovery.
Favourable conditions for the dollar but not for the zloty
Information on the increase in the number of cases after the opening of economies and the consequences of this is currently one of the main factors determining market sentiment. This sentiment seems to be worsening since yesterday, resulting in a strengthening of the dollar - a trend that can be continued, especially as the dollar still has a considerable "reserve" to appreciate (the level of 1.10 per EUR/USD seems to be achievable with the weaker sentiment).
The coronavirus concerns are accompanied by US trade conflicts with China and the US with the European Union. These may intensify as the November US presidential elections approach. The deterioration of trade relations may, in turn, reduce the optimism that has dominated the market in recent weeks.
The flow of information is currently negative, which ruins the sentiment in the market and has a negative impact on the zloty. Most emerging currencies are not doing well with the strengthening dollar. However, today the zloty was - right after the Czech crown, the ruble and the forint - the weakest of them.
The EUR/PLN exchange rate was about 4.47 PLN, and the USD/PLN exchange rate was 3.99 PLN. And although these values are within the ranges of the last two weeks, they rise just below the upper limits of them. If we observe the further deterioration of sentiment and strengthening of the dollar, the supply pressure on the zloty may also increase.