Texas may announce lockdown again, the dollar slowly appreciates (Afternoon analysis 26.06.2020)

Reports from the USA on pandemic are worsening market sentiment. The dollar appreciates slightly in the afternoon - the EUR/USD pair tests 1.12 level. Expenditure by Americans, from the greatest drop in April, has recorded the biggest increase in May in history (since at least 1959). The zloty remains in a weaker condition.

Extreme fluctuations in private spending

In the afternoon, a set of data from the US economy became known. Under normal circumstances, their most important reading would probably be the PCE inflation reading for May, which in turn may indicate further actions of the Federal Reserve and interest rates. Currently, however, rates are likely to remain unchanged at 0-0.25% by the end of 2022, or in any case, this is the message from the Fed.

Therefore, market attention is more focused on data related to the recovery from a deep recession. This includes information indicating consumer behaviour. According to the Bureau of Economic Analysis (BEA), private spending by Americans increased by 8.2% on a monthly basis in May, 1 percentage point below expectations. The data also underline how deep the recession is, because, in just a month, spending changed from the sharpest fall (-12.6%) to the highest growth pace in history (research since 1959).

Information that the market would rather not know

However, reports from the US on the pandemic are more important than information on spending. Already yesterday, some of the states reported that they had broken records regarding the number of cases and hospitalisations on Wednesday. Today, however, the record has been set collectively in terms of the number of new cases in the entire USA. On top of that, the Governor of Texas ordered that, due to the rapid increase in the incidence of the disease, bars should be closed again, and bans on gatherings should be imposed. Although this is an isolated case in the world for the time being, the very idea of re-closing economies or parts of them may be enough to ruin the positive sentiment of investors and increase risk aversion.

A greater aversion to the more risky asset classes was visible on Friday afternoon when the main market indexes were losing about 2% each, and the dollar was slowly rising. These were not significant changes for the time being, but the EUR/USD exchange rate again tested the limit of 1.12, which also affects the slightly weaker condition of emerging countries' currencies.

Zloty depreciates, but there is an exception

Today, the zloty depreciated in relation to most of the main currencies. The EUR/PLN exchange rate was about 4.47 PLN, the USD/PLN exchange rate was about 3.98-3.99 PLN. On the other hand, the weakening of the pound on the global market (the GBP/USD pair was at the lowest level since the beginning of June) contributed to the fact that the GBP/PLN exchange rate is still just below the bottom line since mid-March (slightly below 4.91 PLN). It will be important for the future fate of the zloty, whether this optimism from recent weeks will deteriorate due to the inflow of relatively large amounts of negative information. In such a case, the acceleration of the dollar's appreciation could weaken the basket of the zloty, probably with the exception of the relation to the pound. The weakness of the British currency should keep the GBP/PLN exchange rate at relatively low levels, i.e. below 5.00 PLN in the coming days.