Although the changes are limited, the zloty is among the weakest currencies of emerging countries in the afternoon, after worse than expected data from the Polish industry for August. Next Wednesday is important for the euro and also for the zloty due to PMI publications.
The euro and the dollar quotations fluctuate little, but the dollar does not depreciate
In the afternoon, there was a decrease in supply pressure on the dollar. The EUR/USD quotations after reaching about 1.1870 even before midday, in later hours dropped to about 1.1840, approx. 0.1% below yesterday's closing. The changes on the broader market were therefore limited, which was also supported by the lack of significant macroeconomic publications.
However, the minimal recovery of the dollar, combined with slightly weaker data from the industry sector in Poland published this morning, resulted in a gradual increase in the supply pressure on the zloty. Even before the beginning of quotations on the New York Stock Exchange, the zloty was, apart from the ruble, the lira and the real, the weakest currency of the emerging countries.
Data from the Polish industry do not help the zloty
These were not significant changes - they were within 0.3% in relation to the main currencies. However, they may highlight the potential vulnerability of the zloty if we observe a strengthening of the dollar and/or a worsening of global sentiment (resulting in increased risk aversion). In such a scenario, the Polish currency may be under increased supply pressure, especially considering that it was one of the fastest appreciating currencies in previous weeks, benefiting from the depreciating dollar and positive perception of coping with the pandemic in the EU.
By the end of the day, quotations on the broader market should be relatively calm. Preliminary data from the University of Michigan on the US Consumer Sentiment Index will be published, but they should not considerably change the current market situation. If the data do not disappoint (minimal improvement is expected) and the supply pressure on the dollar does not increase again, the zloty will probably end the week in a slightly weaker condition.
PMI will give more clarity about the increase in activity
However, next week may be important for both the euro and the zloty. On Wednesday, the IHS Markit will publish preliminary data of the PMI activity indexes of industrial and services sectors in the eurozone and major economies for September. Minimal improvement in industrial activity growth is expected as well as maintaining the current growth pace in services.
PMI data for September may to some extent answer the question of how sustainable is the increase in activity in economies emerging from the closure that we observed in previous months. The increase in activity in each subsequent month may come more and more difficult, and if PMI data on Wednesday fail, the supply pressure on the zloty may increase.