Zloty among the strongest emerging countries currencies (Daily analysis 13.08.2020)

The dollar depreciates another day in a row, although the weekly labour market data give a small light at the end of the tunnel. The zloty is again one of the strongest currencies of emerging countries, accompanied by the forint and the koruna. The region's currencies benefit from the effects of fighting the pandemic and fiscal decisions.

Demand for the dollar still limited

On Thursday, the dollar weakened compared to yesterday's closing level. Today the main currency pair, i.e. EUR/USD, rose to 1.1850 around midday, the highest level since last Friday.

The past few weeks on the currency market present a story of a weakening dollar. Worse effects of the fight against the pandemic in the USA (compared to Europe or Asia) have played an important role here. Recently, problems with fiscal stimulation have also reduced demand for the US currency.

While EU leaders already reached a consensus on the economic recovery programme a month ago, in the US Democrats and Republicans are still far from agreement. According to Bloomberg, the parties differ by about 2-2.5 billion USD. Although the US President has issued regulations providing additional aid to the Americans, these are not enough, and some of the aid programmes expire.

This could be another obstacle to increasing activity to the point before the pandemic. Previously, the difficulties were due to the re-imposition of restrictions in some states. Yesterday, Eric Rosengren, head of the Boston Federal Reserve branch, admitted in an interview on Bloomberg TV that the US opened up too quickly.

Number of submitted jobless claims is the lowest since the pandemic started

This afternoon a positive stimulus for the dollar in the form of a weekly report on jobless claims came. The number of claims submitted last week fell below 1 million, which was the first time in 21 weeks, to 963,000. A reading of 1.1 million was expected. The number of people already receiving claims was also lower than expected, down by half a million to 15.5 million, the lowest level since the first week of April.

However, it should be remembered that in both cases, these are still very high levels indicating strong labour market disturbances. Before the pandemic, the highest recorded number of initial jobless claims was just over 600 thousand.

However, fundamentally this does not change the dollar's valuation but may prevent it from being further depreciated. The key, at least in the context of the next few days, will be tomorrow's US retail data. If they come as a positive surprise, the dollar may pare a bit of loss incurred.

The zloty is supported by the current situation

Before this happens, the current situation, i.e. a weaker dollar and a low level of risk aversion, favours the Polish currency. The zloty is again one of the strongest currencies in the group of emerging countries. The Czech koruna and the forint are equally strong. This is a story known from days and weeks past. It shows the market's attitude towards the region. The Polish economy and also the zloty are likely to emerge from the pandemic in better shape than before, as market participants are currently counting on.

The USD/PLN exchange rate fell to about 3.71, coming back to the lower range of volatility since late September/October 2018. The EUR/PLN remains slightly below 4.40, where the globally stronger euro makes it impossible for the pair to fall significantly.

Today, we can expect an increase in volatility as US investors become more active. Nevertheless, market attention may already be focused on tomorrow's retail data from China and the USA and the consumer confidence in the USA. At the time of publication, we can expect the volatility of the foreign exchange market to increase.