The dollar rate continues to fall; the euro exchange rate stopped (Daily analysis 19.05.2021)

The US dollar found itself in a downward spiral of weakness. Even the cooling of sentiment on Wall Street is not helping the US currency, nor is appetite fueled by the crash on the cryptocurrency market.

The dollar's quotations are declining against the background of rising inflation and an evident reluctance of the Fed to abandon its mild policy stance. It should not be assumed that the perception of the FOMC attitude will change after the publication of the minutes from the last meeting in the evening. The EUR/USD pair is hitting multi-month highs at 1.2250, and the main hope for the dollar is a further weakening of risk appetite on the equity markets. The plunge in cryptocurrencies could also harm the sentiment after the Chinese authorities issued a statement to limit the role of digital tokens as a means of payment. The Bitcoin exchange rate breached the 40,000 barrier today and fell temporarily by around 10%.

The Canadian dollar and the Norwegian krone are at their best

On the London Stock Exchange, the price of oil per barrel has again touched the barrier of 70.00 USD. Since the beginning of the year, the crude price has risen by as much as a third. The boom in oil and fuel markets is one of the reasons behind the strength of the Canadian dollar and the Norwegian krone. The other (partly related) is the attitude of central banks. Canada has already announced an end to asset purchases. Norges Bank will be the first central bank among developed economies to raise interest rates (due to the red-hot property market). As a result, the Norwegian krone and the Canadian dollar are among the three strongest among the important currencies.

Both currencies should remain strong against the euro and dollar, but the potential for further increases is low. On the one hand, the more restrictive monetary policy in both economies has already been priced in. On the other hand, we do not see significant growth potential in oil prices. E.g. the EUR/NOK pair has been hovering around 10.00 for many weeks, but it has a problem with permanently pushing through this barrier. Further declines in the USD/CAD exchange rate would be derived from the weakening of the dollar that we expect rather than from factors on the side of the Canadian currency. Quite similar is the position of the ruble, which has already made up three quarters of the losses associated with the spring increase in geopolitical tensions. At the moment, the situation in the oil market raises more threats than opportunities. The progress of vaccination programs, the reopening of economies with the support of aggressive monetary stimulation and increased fiscal spending have pushed up crude prices so much and permanently that the signatories of the OPEC + agreement will abandon the limits in production. The better the global economy performs and the stronger the demand for fuel, the stronger the push to restore production as soon as possible will be, which will hold back Brent crude's gains.

The zloty appreciates but watches the back of the forint and the koruna

CEE3 currencies have had their five minutes, and their appreciation is the result of the upcoming changes in monetary policy. If one can say that the Monetary Policy Council made a turn towards a more restrictive stance and faster rate hikes that would be beneficial for the currency, it was only a barely noticed blink of an eye against the signals coming from other central banks in the region. Moving the pricing of monetary cost increases from the end of next year to the first half of the year and considering the possibility that the tightening will start this year is nothing compared to the clear announcements of the central bankers of Hungary and the Czech Republic. In the former case, a clear declaration was made on Monday that rates would be raised despite the continuation of the asset purchase program (in contrast to Poland). The monetary authorities want to fight inflation actively, and a rate hike can be expected as early as June. Earlier this month, the CBN Governor announced that the economic damage caused by the third wave of the pandemic was not strong enough to postpone the first rate hike. As a result, all the currencies of the region are doing well in May, with the forint and koruna stronger than the zloty: while the EUR/PLN pair cannot push past the April low of 4.52, the EUR/HUF has approached 350, and the EUR/CZK has already started to erode the 25.50 mark.