Stronger dollar depreciates the zloty (Daily analysis 26.08.2020)

Increased demand for the US currency weakens the Czech koruna, the Hungarian forint and the zloty. The EUR/PLN rises to about 4.41, and the USD/PLN to 3.74. Germany approves an additional 10 billion EUR to support employment preservation until the end of 2021.

Things are going better than people feared

Wednesday trading on the currency market proceeded in a calm atmosphere. The lack of significant macroeconomic publications was conducive to stabilization, although sentiment in the broader market remains relatively positive. This was also supported by the positive reports of recent days, such as the international trade and the much better confidence of German businesses in August.

Yesterday evening, another "supportive" information came from Germany, where the coalition of Chancellor Angela Merkel agreed to extend the job preservation programs until the end of 2021. About 10 billion EUR will be devoted to supporting the European largest economy's labour market - in addition to the 1.2 trillion EUR already assigned to fighting the effects of the pandemic.

In an interview for ZDF television, Finance Minister Olaf Scholz admitted that "because we acted swiftly and comprehensively, it has helped Germany come through the crisis much better than many other countries". Scholz also added that "things are going better than was feared a few weeks ago". Combined with the better-than-expected data from the ifo institute, this gives a slightly better picture of what we are seeing in the US (it is unlikely that Congress will reach agreement on fiscal issues before mid-September).

The dollar shows signs of life

This is generally positive news also for the euro, although today it was under pressure from the slightly stronger dollar. The main currency pair, i.e. EUR/USD, fell by about 0.4% to 1.1780 this afternoon, but this should not be seen as some fundamental change or a return of the stronger dollar (at least not yet). This is within the fluctuation range of the last days, right at the lower level of volatility since the beginning of the week.

A slightly stronger dollar is usually a negative sign for the currencies of the emerging countries. It was no different today - the Czech koruna, the Hungarian forint and Polish zloty were among the weakest in the basket of EM. However, as in the case of the EUR/USD, the changes were in the ranges from the previous days and were relatively limited (to about 0.5% in the case of the forint). The EUR/PLN exchange rate rose to 4.41 today and the USD/PLN rate to about 3.74. A larger fluctuation range, and potentially more significant changes in the currency market, can be expected tomorrow afternoon, when the Chair of the Federal Reserve, Jerome Powell, will address the economic conference held traditionally in Jackson Hole.