The US administration is planning to increase infrastructure spending to combat the negative effects of the pandemic, and the Federal Reserve is starting to buy debts of US companies. Market sentiment is clearly better, the dollar is weaker, but the zloty is also weaker internally. Today is the Polish MPC statement.
Fiscal and monetary stimulus to the US economy
Last night we observed a significant improvement in market sentiment. It continued this morning. Optimism was reinforced when the Federal Reserve announced that it would be buying bonds of US companies from Tuesday. In addition, Bloomberg said the White House administration is planning to increase infrastructure spending by nearly 1 trillion USD to revive the affected economy.
Apart from strong increases in the main market indexes, better sentiment weakened the dollar as usual. The main currency pair, i.e. the EUR/USD, was close to 1.12 yesterday before midday, while today the exchange rate rose back to around 1.1350.
Zloty is weaker before the Polish MPC
Slightly greater supply pressure on the dollar usually helps the zloty, which generally strengthens if optimism in the broader market dominates. Today, however, until midday, the zloty was noticeably weaker compared to other emerging country currencies (EM), and alongside the Turkish lira and Indian rupee, it was the weakest of the EM currencies in relation to, among others, the dollar, the euro and the franc.
This does not translate into significant changes in exchange rates, as the worse condition of the zloty is, to some extent, negated by positive global sentiment and the weaker dollar. The EUR/PLN quotations increased to approx. 4.43 and the USD/PLN to approx. 3.91 at midday, with increases of 0.3 and 0.2% respectively. Today's weakness of the zloty is partly related to the expected decision of the Polish Monetary Policy Council (MPC) regarding monetary policy in Poland.
At the previous meeting, the MPC surprised the market with the interest rate cut from 0.5% to 0.1%. Although no changes are expected today (also a month ago), the market may already be cautious about the upcoming decisions of the Monetary Committee of the National Bank of Poland. Ultimately, however, until we observe fundamental changes in the market, the zloty should remain within a limited fluctuation range.
Will Powell cool down the optimism again?
These fluctuations may increase around certain important events, and we will have to deal with them this afternoon. At 2:30 p.m. essential data from the USA (retail sales and industrial production for May) will be published, which will give some guidance on how the world's largest economy is emerging from the pandemic. An hour and a half later the statement by the Chair of Fed Jerome Powell before the US Congress will begin.
Powell has portrayed a rather difficult path for the US economy in his statements so far. Therefore, his statements could potentially reduce optimism in the market a little, weakening the zloty.