Unfavourable conditions for the zloty (Afternoon analysis 3.09.2020)

A slightly stronger dollar and a depreciation on the equity market have a negative impact on the zloty, which remains one of the weakest currencies of emerging countries in the afternoon. Activity in US services is not particularly disappointing, but employment in this sector is still falling. Tomorrow a key report from the US market will be published.

Weaker data, weaker sentiment

In the second part of the day, there was a deterioration in the sentiment on the market. Strong declines in the main market indexes were driven by the highest since March (at some point 5 %) depreciation of the US technology company indexes - Nasdaq. The deterioration of sentiment causing an increase in risk aversion spread to other areas of the financial market in the afternoon as well.

Today's equity market depreciation, although almost unnoticed over the past few weeks, coincided with slightly weaker-than-expected macroeconomic data from both Europe and the US.

This afternoon, the PMI indexes for US services were announced for August. Activity in this sector measured by the ISM index fell by 1.2 pts. to 56.9 pts., which was a minimum below the market consensus of 57.0. This came as no negative surprise, but the sub-index of employment in services still shows a decline.

Combined with previously published data on the increase in the number of new jobless claims, this may raise concerns about the condition of the US labour market and undermine market sentiment.

Report will be worse than the market expects?

Decreasing demand for more risky assets increases the supply pressure on the zloty. The Polish currency loses profits earned in the past weeks. The EUR/PLN exchange rate exceeded 4.44 and the USD/PLN pair 3.76 in the afternoon, with a minimal increase in the value of the US currency on the broader market. The Bloomberg dollar index, although it grew by several tenths of a percent in the afternoon compared to yesterday's closing, did not even reach the level recorded a week ago.

The zloty's quotations may change tomorrow during the publication of the US labour market report. There are indications that the employment data will not be as optimistic as the market expects, and this would limit the growth potential of the dollar.