The dollar shows signs of activity (Daily analysis 18.06.2020)

Mixed data from the USA: the number of initial jobless claims is falling, but slower than expected by economists. In turn, the rate of business activity in the Philadelphia region is already rising to pre-pandemic levels. The Bank of England has not changed interest rates, yet the pound is weakening.

The market indexes depreciate, and the dollar appreciates. Why?

Even before the start of the New York Stock Exchange session, market sentiment was gradually deteriorating. This was reflected, among other things, in declines in the main European market indexes as well as a strengthening of the dollar. The main currency pair, i.e. EUR/USD, fell to 1.1220. This is within the range of fluctuations of the last days, but it is the lower limit of the euro-dollar rate of the last two weeks.

Slightly weaker sentiments result partly from the already falling wave of optimism, and partly from reports of increased disease occurrence after the restrictions have been eased in Beijing or some states in the USA. The incoming macroeconomic data are also inconclusive and do not give a clear picture of the way out of the recession.

The USA is looking at Philadelphia

In the afternoon, the US Department of Labor published a weekly report on jobless claims, which draws attention to the unprecedented impact of the pandemic. Admittedly, the number of claims submitted and people already taking out unemployment insurance fell, but these were limited falls: by 58,000 to 1,508 million for claims and by 62,000 to 20,54 million for the insured. The market expected significantly stronger decreases: to 1.29 million and 19.85 million, respectively.

At the same time, a branch of the Federal Reserve in the Philadelphia region published data on business activity and expectations. The data, in turn, strongly exceeded the consensus of economists' expectations: the activity and expectations index rose to 27.5 pts., well above the expected minus 21.4 pts., and reached its highest level since February this year, when restrictions were not yet imposed on the economy.

Basically, today's data change nothing, but they underline the fact that it will take two or three more months and more data in order to have a clearer picture and assessment of the effects of the first wave of the pandemic and the pathway out of it. Until then, currency quotations may remain limited, and sentiment will be dictated by data from the pandemic front. As economies open up, the likelihood of a second wave of a pandemic increases, something the market will want to discount.

Bank of England does not surprise

The Bank of England made its monetary policy decision, unsurprisingly leaving interest rates unchanged and increasing the bond purchase programme by 100 billion GBP.

The pound was clearly deteriorating after this decision, although the fall in value was partly due to the global appreciation of the dollar. The GBP/USD fell to its lowest level since June 1st, i.e. close to 1.24.

The pound to zloty quotations also fell by nearly 1%, but the rate of around 4.94 is the same as we saw two days ago. Against the background of today's slightly weaker sentiment on the market, the zloty remained stable in relation to the dollar, the euro and the franc. The USD/PLN (ca. 3.97), EUR/PLN (ca. 4.46) and CHF/PLN (ca. 4.18) were just next to yesterday's closing levels. For the zloty, similarly to most currencies of emerging countries, the behaviour of the dollar in the coming days will be important (apart from the path of recovery from recession). If we observe further appreciation of the dollar and a drop in the EUR/USD exchange rate, the zloty basket may also weaken.