Stronger euro and stronger zloty (Daily analysis 22.07.2020)

On Wednesday, the euro appreciated against most of the main currencies. The EUR/USD exchange rate rose to its highest level since October 2018. Yesterday we were writing about the pair approaching 1.15 level, while today the main currency pair's exchange rate exceeded 1.16 in the afternoon.

The disparity between the EU and the US supports the euro

The effectiveness of the fight against coronavirus in Europe and the consensus of EU leaders on the economic recovery programme reached yesterday woke the euro from lethargy. The situation in the US is completely different in terms of the number of cases and the lifting of restrictions. Among other things, this means that the currently weakened dollar also helps the euro to continue its dominance.

Yesterday evening, in a speech from the White House, President Donald Trump warned that the pandemic situation in the US is likely to get even worse before it gets better. This was complemented by the information coming in from the individual states for more than three weeks about records of the number of cases and re-imposition of restrictions.

The difference between Europe and the US reflects the improving condition of the euro, which is unlikely to change significantly until the end of the summer break. From September onwards, the market may start to attach slightly more importance to the US elections and the worsening of relations with China.

Yesterday, the US authorities gave three days to China to close its consulate in Houston, citing in a statement as a reason "to protect American intellectual property and Americans' private information". It did not take long for China to react. A moment in the afternoon the news agency Reuters reported that the closure of the US consulate in Wuhan is under consideration. The escalation of geopolitical tensions does not play such a major role in the market yet, but it is likely to increase already in the autumn, and current reports do not promise to mitigate the conflict.

Favourable conditions to the zloty

It can potentially support the dollar after all, but it is currently in a weaker condition. Moreover, this supports emerging countries' currencies, including the zloty, which, along with the Hungarian forint, is the strongest of the EM today. However, this is also the result of the compromise reached in Brussels. The zloty is also backed up by further positive data from the Polish economy. According to the Polish Central Statistical Office (GUS), the sentiment of Polish consumers has clearly improved compared to June. The confidence index rose by 6 points to minus 13.4, confirming positive trends in the economy.

As a result, the USD/PLN exchange rate fell below 3.82 today, i.e. to the lowest level since March 10th, while the EUR/PLN exchange rate fell to approx. 4.425, which was the lowest level since mid-March. Today, there are no events in the economic calendar that could significantly affect the condition of the zloty. However, with greater activity of US investors, sentiment may potentially deteriorate slightly after the escalation of the conflict with China, which may also be an opportunity for a natural response to the recent strong growth of more risky asset classes.