The main currency pair's exchange rate that hasn't been seen for a long time (Afternoon analysis 27.07.2020)

The depreciation of the US currency is at its best, with the euro/dollar exchange rate reaching 1.1780 USD in the afternoon. This is a new high since September 2018. The good condition of the euro and, at the same time, the weaker dollar is good news for the zloty, which is currently one of the strongest currencies of emerging countries.

On Monday afternoon, the weakening trend of the US currency continued.

All that torments America is pulling the dollar down

The EUR/USD exchange rate was already above 1.17 in the early morning hours, approaching 1.18, rising by more than 1% compared to Friday's closing. The dollar sell-off also has consequences in the valuation of other assets, including gold, whose price reached historic records in the afternoon (about 1945 USD per ounce), approaching the 2000 USD threshold.

The dollar's weakness is affected by the epidemic in the USA. Some states are delaying the lift of restrictions. Sometimes they are also reintroducing them, potentially prolonging the return of the national economy to its pre-pandemic point. If we combine it with very low interest rates (from 0 to 0.25%), we get the real profitability of US debt falling deeper and deeper below zero, which weakens the dollar.

In relation to the euro, the US currency's weakness is also caused by the fact that European countries are fighting coronavirus more effectively than the US, and the growth pace of economic activity on the Old Continent is faster than across the pond. The market will be able to see this on Thursday when the preliminary data on GDP changes in the Q2 of both the eurozone and the USA will be published.

Growing disparities between regions may prompt market participants to increase demand for the euro, which would most likely have a negative impact on the dollar.

The zloty benefits from the current situation

The deteriorating dollar creates perfect conditions for the zloty, which this afternoon was, along with the South African rand and the Mexican peso, the strongest currency of the emerging countries. The USD/PLN exchange rate did not stop at 3.75 PLN. In the afternoon the quotations fell even slightly below 3.73 PLN, i.e. to the lowest level since the end of January 2019. The strengthening of the zloty basket also caused the EUR/PLN exchange rate to fall to 4.39 PLN, i.e. the level recently observed in early July.

For the zloty, a positive scenario continues to play out. The threat to a halt in appreciation or the weakening of the Polish currency is primarily posed by geopolitical tensions and the related elections in the USA in November and a possible second wave of pandemics in Europe. Increased fears in this respect may, at some point, increase investor demand for the dollar. However, these are problems which may become more significant only after the summer season.