The zloty pared some losses (Afternoon analysis 7.09.2020)

Without investors from across the pond, market sentiment is improving. The zloty is again one of the strongest currencies of emerging countries. The EUR/PLN exchange rate is closer to 4.43, and the USD/PLN is approx. 3.75.

The trade on a Monday afternoon, when a large part of US investors were absent (the US Labor Day), was held in a positive mood. After the last week's drops on the markets, today's biggest European markets gained about 2% each.

For a dollar, it changed little. The EUR/USD quotations were around 1.1820 in the afternoon, which is about 0.1% below the level of Friday's closing. The improvement in market sentiment was used by the currencies of emerging countries (EM), especially those that lost most at the end of last week.

Forecast for the pound: large space for declines

The zloty belonged to this group. These were not significant changes but allowed the zloty to pare some of the losses against the main currencies. The EUR/PLN exchange rate dropped to about 4.4350, although on Friday and today we also observed the pair about 4.47. A slightly smaller decline was observed in the case of the dollar, the USD/PLN exchange rate was about 3.75 in the afternoon. The biggest change among the main currencies today concerned the pound, which in the afternoon lost about 1.2% to the zloty.

The GBP/PLN exchange rate depreciated from about 5.00 to 4.94, the lowest level since last Wednesday. The change is the result of increased concerns about the lack of agreement between the UK and the European Union on a new trade agreement. Given that the pound has benefited from the global weakening of the dollar from previous weeks, the British currency now seems to have a lot of ground to depreciate if the rhetoric on both sides gets tougher. Negotiations on the terms of the trade agreement are expected to resume this week.

Event of the week: Thursday's ECB meeting

On Thursday, a statement and a press conference of the European Central Bank following the meeting of the Monetary Committee appear to be the most important events. New macroeconomic projections (including GDP and inflation) will be presented, which may not be very important at the moment, but their possibly gloomy tone may prompt the ECB to increase its activities.

On Thursday, around the time of the ECB's statement and conference release, we can expect significant fluctuations in the broader foreign exchange market. The dollar is slowly recovering, and if the ECB representatives say something that will weaken the euro, the US currency may gain a stimulus for growth, which may weaken the zloty, especially against the dollar.