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Stabilisation, but the sentiment will change quickly (Daily analysis 25.02.2020)

25 Feb 2020 14:02|Bartosz Grejner

On Tuesday, the fluctuations in currency quotations were much smaller than on Monday. However, negative sentiment persists, but the changes are limited, which supports the stability of the zloty. The EUR/PLN exchange rate fluctuates around 4.30, and the USD/PLN is around 3.95-3.97.

On Tuesday morning, the main market indexes were gaining, and the dollar was losing a bit. Around midday, the main European markets were experiencing a loss of about 1 percent each, and the dollar pared some of the losses incurred in connection with the strong drop in US Treasury bond yields. A moment in the afternoon, the EUR/USD exchange rate was about 1.0830, which is about 0.2% below yesterday's closing level. The Bloomberg dollar index (which also covers emerging countries' currencies) was, in turn, about 1216 points, i.e. close to yesterday's closing level.

Zloty's fate depends on market sentiment

The lack of significant changes helps the Polish currency maintain relatively stable quotations compared to Monday. In relation to the main currencies, the fluctuations until midday were limited and were close to yesterday's closing level. The EUR/PLN exchange rate oscillated around the 4.30 boundary, while the USD/PLN exchange rate was around 3.95-3.97. The future fate of the zloty will depend on changes in market sentiment.

The situation related to the coronavirus will not improve dramatically from day to day, so we can expect that the sentiment and weakened condition of the zloty observed currently will continue in the coming weeks, and perhaps months. The market is now reacting primarily to information about the virus. What will be the impact of the epidemic on the economy will be shown by macro data, which will start to appear in the coming weeks and months. Given how underestimated the impact of the coronavirus was, these macro data may disappoint expectations, which in turn may only increase risk aversion, weakening emerging countries' currencies.

What to expect later in the day

Later in the day, at 4:00 p.m., the consumer sentiment index from the Consumer Board (CB) will be published. The median of market expectations indicates an increase of 0.5 points to 132.1 points. Exceeding this level may slightly strengthen the US currency, emphasising the disproportion between the US and eurozone economies. Friday's PMI data from IHS Markit, which turned out to be very weak, may have cast a shadow over the picture of the good condition of the US economy. However, market participants in the case of the USA tend to pay more attention to ISM readings, and if these confirm similarly weak data (next week), the dollar may be under increased supply pressure.

25 Feb 2020 14:02|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

24 Feb 2020 13:01

Strong growth in risk aversion, the zloty loses (daily analysis 24.02.2020)

21 Feb 2020 14:47

Positive PMI data from the eurozone (Daily analysis 21.02.2020)

20 Feb 2020 17:48

Beginning of the year belongs to the dollar and US economy (Afternoon analysis 20.02.2020)

20 Feb 2020 14:05

Zloty under pressure exerted by the dollar (Daily analysis 20.02.2020)

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