The zloty again among the winners (Daily analysis 23.07.2020)

Thursday brings a continuation of the trends observed in previous days. The weaker dollar and the stronger euro put the main EUR/USD pair just below the 1.16 boundary, the highest level since October 2018.

Bonds reflect what the market thinks of Europe

Positive sentiment may be well reflected in the situation on the bond market. The yields on Italian Treasury bonds, maturing in 10 years, fell below the key level of 1% today, to the lowest point since March 5th. The difference between German and Italian Treasury bond yields is gradually narrowing, and on Thursday it was the lowest since February 24th, indicating that credit risk in the region is decreasing.

This is, of course, a factor supporting the euro, especially if there is a more serious threat of a pandemic in the US. The geopolitical tensions between the US and China have been increasing in recent days. Combined with the upcoming US elections in November, these factors could potentially interrupt this rally of optimism on the broader market, strengthening the dollar as a result.

Brexit issue returns

Today, reports from another front have also emerged, that can also potentially worsen sentiment at the end of the year. According to the Financial Times, Michel Barnier, the EU's chief Brexit negotiator, warned that no progress had been made on key issues of the Union's trade agreement with the UK, i.e. state aid and fisheries. He added that the UK's attitude indicates that the agreement was "unlikely" at the moment.

However, there are also positive points in the negotiations. Barnier reported that talks in other issues were constructive and that informal negotiations are expected to continue next week. However, the matter of Brexit will return to the market agenda again. This is a threat to the positive sentiment, but it also announces greater fluctuations of the pound and its potential weakening at the end of the year.

No unfavourable information for the zloty

Today, after comments by the chief of EU negotiators, the British currency depreciated slightly, and in relation to the zloty, was the weakest since March 19th. The GBP/PLN exchange rate fell to around 4.8240 around midday, but this is not only due to the globally weaker pound. Today, the zloty was again one of the strongest currencies of emerging countries, along with the Indonesian Rupee and the Hungarian forint.

Today, the Polish Central Statistical Office (GUS) published data on unemployment in Poland in June. It rose by 0.1 percentage point to 6.1%, but it was lower than the economists' consensus of 6.2%. This sends another signal about positive trends in the Polish economy after better-than-expected data on industry, retail sales and consumer sentiment.

The zloty is currently receiving almost no negative internal or external impulses. The EUR/PLN exchange rate dropped to approx. 4.41, the USD/PLN exchange rate remains at around 3.82 in the afternoon. The main threat for the zloty over the next few days seems to be the worsening of market sentiment in connection with the growing geopolitical tensions, which may also be an opportunity to lose the recent increases, although here fundamental changes are not expected.