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The dollar and the franc depreciate, the zloty appreciate. Geopolitics in the background (Afternoon analysis 27.05.2020)

27 May 2020 18:18|Bartosz Grejner

The zloty remains strong against the main currencies. Increased risk appetite in the global market weakens the franc and leads to a drop in the CHF/PLN exchange rate to levels not observed since mid-March. Information from the White House may increase geopolitical tension.

The EUR/USD exchange rate still close to 1.10

On Wednesday, there was a continuation of positive sentiment related to the opening of economies. This was also accompanied by information about the European Commission's aid package (750 billion EUR). The market does not care much about the escalation of geopolitical problems (US-China), the very uncertain shape of the recovery path or the warnings of Christine Lagarde (President of the ECB) about the possibility of a worst-case economic drop scenario for the eurozone this year.

As the session began on the New York Stock Exchange, a slight correction was observed, mainly by technology companies. It was followed, among others, by the dollar, which pared some of the losses incurred earlier. However, it is still in a relatively weak condition compared to levels from two weeks ago. At the time, the EUR/USD exchange rate fluctuated around 1.08, while today it is around 1.10.

The zloty basket on the upward trend

The continued relative dollar's weakness, combined with the optimism related to the gradual lifting of restrictions on the economies have a positive impact on the Polish currency. The zloty basket is clearly stronger every day, although this is mostly due to external factors.

The zloty has been the strongest in relation to the majority of the main currencies since March. The USD/PLN exchange rate fluctuated around 4.0170-4.0530 and the EUR/PLN exchange rate around 4.4060-4.4460. The strengthening of the euro on the global market and increased appetite for risk, in turn, significantly reduced demand for the Swiss franc. Today, the EUR/CHF quotations increased just below 1.07 (1.06984), which is the level recently observed on March 4th.

In the afternoon, the franc pared this loss slightly, but this increase (which has been going on since mid-May) shows what attitude the market is currently in. The sales pressure on the franc also made it possible for the CHF/PLN exchange rate to fall to 4.14 during today's session (the lowest since March 16th). Also in the afternoon, sales pressure on the pound increased, and the GBP/PLN exchange rate fell even slightly below 4.93.

What the Americans say about Hong Kong

In the late afternoon (CET time), a White House report came in which stated that the USA no longer perceived Hong Kong as an autonomous entity in relation to China. This may have far-reaching consequences for trade, but most importantly, it highlights the fact that geopolitical tensions are not diminishing. They may potentially, over time (the approaching US presidential election in November), worsen sentiment in the broader market, eventually weakening the zloty (as a result of potentially increased risk aversion).

27 May 2020 18:18|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:

27 May 2020 14:48

The EU stimulus package improves sentiment (Daily analysis 27.05.2020)

26 May 2020 17:44

A strong appreciation of the zloty: the pound is quoted below 5 PLN (Afternoon analysis 26.05.2020)

26 May 2020 14:30

High level of optimism (Daily analysis 26.05.2020)

25 May 2020 17:59

Positive sentiment at risk (Afternoon analysis 25.05.2020)

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