Stronger dollar returns (Afternoon analysis 22.09.2020)

The demand for the US currency does not decrease on Tuesday afternoon. The stronger dollar makes it impossible for the zloty to pare losses. The Polish currency is still supported by a relatively positive mood for the time being, but increasing risk aversion like yesterday may weaken the zloty again.

The EUR/USD close to a drop below 1.17

With the increased activity of the US investors, on Tuesday afternoon the demand for the dollar returned. The exchange rate of the main currency pair, i.e. the euro to the dollar, fell back just below 1.1730 in less than an hour after the start of trading on the New York Stock Exchange. This was still quite a limited change in the context of today's situation - since the morning quotations moved from about 1.1720 to 1.1770, but the dollar clearly caught some wind in the sails in the last days.

In the afternoon, the EUR/USD quotation was about 0.4% below yesterday's closing, and a more pronounced fall below 1.17 may open the way for further appreciation of the US currency. Yesterday, the euro/dollar quotations fell below the 50-day moving average but closed slightly above it. Today, the EUR/USD exchange rate is once again below this average (1.1771), and if quotations end below this level, it will be the first time since mid-May, highlighting renewed demand for the dollar.

If we look at the Bloomberg index of the dollar, which also includes the currencies of emerging countries, it rose to its highest level in nearly two weeks today. It has also been at its highest level for about five weeks. With increasing signals of growing coronavirus cases in Europe and the imposition of certain restrictions by some countries (such as the United Kingdom today), the arguments for a strong appreciation of the euro and a weakening of the dollar are losing strength.

No deterioration in sentiment prevents the zloty from depreciation

Yesterday we also observed a clear appreciation of the dollar, but it was accompanied by the sale of more risky asset classes, such as equities or goods (which are also priced mainly in dollars). This afternoon there was a relative serenity here - the quotations of the main market indexes in Europe were up to about 1%, their equivalents in the US up to 0.5%. So it cannot be said that there is optimism (after yesterday's even 4.5% drops in some cases). Still, so far the lack of depreciation among the more risky asset classes reduces the pressure on emerging countries' currencies, including the zloty.

Today, the zloty has reached new, several week-long records of weakness in relation to, among others, the dollar, the euro or the franc in the morning, although in the later hours it pared a bit with the improvement of sentiment. The EUR/PLN exchange rate fluctuated around 4.48-4.49 in the afternoon and the USD/PLN around 3.83. As could be seen yesterday, a threat to the zloty basket is the strengthening of the dollar with a strong increase in risk aversion. The demand for the dollar is not weakening, so if we observe another wave of depreciation on the equity market during a session in the US, the zloty may be under renewed supply pressure and lose in relation to the main currencies.