Pound tries to pare some losses (Afternoon analysis 14.09.2020)

The British currency is stronger on Monday, but despite the favourable sentiment in the broader market and the weakness of the dollar, it is far from the levels observed a week ago.

The US currency still below in red

On Monday afternoon, we observed a further weakening of the dollar, which in effect also strengthens demand for the euro. The EUR/USD quotations increased slightly over 0.3%, again around the 1.19 boundary. The market was also dominated by relatively positive sentiment - most of the main market indexes in Europe gained, and their US counterparts recorded 0.5-1.5% increases at the beginning of the session across the pond.

The weaker dollar and good sentiment in the broader market are generally favourable conditions for the currencies of emerging countries. The zloty remained unchanged in a limited range of fluctuations in relation to the main currencies, with the exception of the pound paring some losses today. The EUR/PLN exchange rate fluctuates around 4.45 in the afternoon, the USD/PLN pair is around 3.74-3.75, and the CHF/PLN is around 4.13.

Today, the GBP/PLN exchange rate rose by 0.7% to about 4.8350, but this is still much closer to the lowest level since mid-March (about 4.79) than the highs of over 5.00 a week ago. The commonly called "cable", i.e., the GBP/USD pair, despite the weakness of the dollar, has not yet exceeded even 1.30, reaching about 1.29 in the afternoon. This is still quite an optimistic valuation of the British currency, considering how strongly the "hard Brexit" perspective has increased again in the last week, which may announce further potential drops in the value of the pound.

The zloty in a limited fluctuation range at the beginning of the week

In the afternoon, the National Bank of Poland (NBP) published data on Poland's trade balance, which disappointed market expectations and may slightly limit the appreciation potential of the zloty in today's favourable conditions. Although the current account showed a surplus of 1.6 billion EUR in July, it was well below June's 2.8 billion and the expected 2.4 billion. Although exports increased by nearly one billion EUR in relation to June, it turned out to be about 200 million below the expected 19.8 billion EUR. At the same time imports increased strongly, from 16 billion in June to 18.56 billion in July, clearly above the consensus of 17.3 billion - returning close to "pre-pandemic" levels (about 19 billion).

Although fundamentally there is little change in the market and today's fluctuations are also limited, this week we can observe increased volatility in the currency market. Especially around the events connected with central banks: on Wednesday with the Federal Reserve and on Thursday with the Bank of England.