The ECB carefully monitors the euro (Afternoon analysis 10.09.2020)

The euro appreciates after the publication of a statement and a press conference of the European Central Bank. The next day of pound depreciation. The GBP/PLN exchange rate is the lowest for nearly a month and a half.

Lagarde very carefully chose her words

Almost all market attention today was focused on events related to the European Central Bank. The published statement did not contain any significant changes. Therefore, it was important what Christine Lagarde, President of the ECB, would say at a press conference on the euro exchange rate.

Just over a week ago, an ECB economist expressed concern that the EUR/USD exchange rate was approaching 1.20 and that the euro was appreciating too much in relation to the dollar. The investors hoped that Lagarde would elaborate on this. And today, the President of the ECB has not let market participants down. In her opening speech, she said that one should not react too hastily to the euro's growth.

This statement alone has probably already calmed down most of the investors' fears about the hawkish tone of the head of the ECB. Lagarde said that the bank will "carefully monitor the euro" and assess its impact on the achievement of the inflation target (too strong euro may hinder this).

During the journalist questions section, a large part of them concerned the exchange rate, highlighting the immense attention around this topic. Lagarde repeatedly stated that the ECB's goal is not to set a specific euro exchange rate, while at no time assessing the current valuation of the euro.

If the bank does not change anything, then the euro goes up

The exchange rate was not previously the subject discussed by the President of the ECB, which leads to the conclusion that the bank is looking closely at this issue from the point of view of achieving the inflation target. However, the ECB does not intend to take any action in this area now, but to monitor it, and this may mean the green light for the continuation of the strong euro.

And this was also the reaction to the ECB events today. The EUR/USD quotations increased at some point by about 0.9%, exceeding 1.19, while only yesterday we observed it around the monthly lows at 1.1760. The euro also increased very strongly in relation to the globally weakened pound. The EUR/GBP exchange rate exceeded 0.92, reaching its highest level since March 26th.

The euro could also be strengthened by increased projections of GDP change in the eurozone. Now the ECB expects GDP growth to drop by 8.0% this year. July's projection said it would be 8.7%. The bank also sees strong growth in consumption within the eurozone, and the data suggest a significant rebound of GDP in Q3. The potential increase of the disease in autumn and winter is a threat to further growth of economic activity in the eurozone.

For the zloty the situation is favourable

No appreciation of the dollar after the Lagarde conference was a good signal for the zloty. The EUR/PLN exchange rate stabilized around 4.45, and the USD/PLN fell to around 3.73-3.74. The strong decline is still visible in the case of the GBP/PLN pair, whose quotations reached the lowest level since July 28th - 4.83 PLN. The weakness of the pound is a consequence of the increasingly sharp rhetoric surrounding the negotiations on the terms of the new trade agreement between the UK and the European Union and the appreciation of the euro.

Following an improvement in market sentiment, the CHF/PLN exchange rate fell slightly from 4.14 to 4.13 but still remains at elevated levels due to the good condition of the franc in the market against the main currencies. Today's events have reduced the chances of the dollar paring the losses incurred in previous weeks, also reducing the chances of the zloty being depreciated. We will probably have to wait until next Wednesday for major changes in the currency market when we will know the outcome of the meeting of the Federal Open Market Committee.