The dollar still in a good condition (Daily analysis 25.09.2020)

The market sentiment does not improve due to the increase of coronavirus disease, signals indicating a slowdown in activity and the upcoming elections in the USA, and it allows the dollar to maintain most of the profits generated. The zloty is one of the weakest currencies this week.

A week of increased risk aversion

The week does not end with the finest mood. Around midday, the main market indexes were losing about 2%, and the dollar was gaining in relation to yesterday's closing, highlighting an increased aversion to risk.

The main currency pair, i.e. the euro/dollar, remains at its lowest level since July 24th (about 1.163-1.164 in the afternoon). The weaker sentiment in the broader market results, among others, from reports on the fight against the coronavirus, i.e. information about the disease records in France, Great Britain or the return of increased restrictions in large parts of countries in Europe.

This is not the only reason, but rather one of several. Moods are already worsened due to weaker data from the eurozone, indicating a faster than expected slowdown in economic activity (especially in the services sector). The upcoming US elections (beginning of November) also add another element of uncertainty for market participants.

Therefore, the chances of a significant improvement of the sentiment in the coming weeks are limited, especially if we consider that in autumn and winter there may be another wave of growth in coronavirus cases, which will reduce the appetite for risk.

The zloty does not pare losses

In such conditions, it is difficult for the zloty to pare losses. The Polish currency was not able to rebound today, but along with the Mexican peso and the South African rand, it is one of the weakest currencies of the emerging countries in the past week. The Polish currency lost just over 2% against the euro, the franc and the pound and nearly 4% in relation to the dollar.

The EUR/PLN quotations continue to fluctuate around 4.55-4.56, levels known from March-May, even before the strong depreciation of the dollar, which significantly improved the condition of most emerging currencies, including the zloty. The USD/PLN exchange rate oscillates around 3.92, the upper limit of the last two months' fluctuation range, the CHF/PLN pair is around 4.22 (in turn, just below the upper limit of fluctuation for four months), and the GBP/PLN is just below the 5.00 boundary (4.99 a moment in the afternoon), above which the last time was on September 7th.

The calendar of important events for the rest of the day is practically empty, so no significant changes in the zloty valuation should be expected, but the potential for improving sentiment (potentially positive for the zloty) seems limited.