Zloty remains in good shape before elections (Afternoon analysis 10.07.2020)

Supply pressure on the dollar is continued, but changes are still very limited: the EUR/USD quotations are close to previous day's levels. The zloty is one of the strongest currencies of emerging countries before the elections, but it will most likely have little impact on its valuation.

There have been attempts but failed, the dollar is still relatively weak

The afternoon was characterised by the continuation of the trends that started in the morning. The dollar was slowly depreciating, and the euro was getting somewhat stronger. This was partly a response to the appreciation of the dollar that started yesterday, and partly the effect of positive data from the French and Italian industrial sectors, which also strengthens the narrative of better control of the epidemic in Europe compared to the US.

As a result, half an hour after the opening of trading on the New York Stock Exchange, the EUR/USD quotations increased to about 1.1315, i.e. close to the level of 1.1320-1.1350 observed a day ago. This also highlights the relatively low range of fluctuations in the broader market at the moment. Although it can also be seen that the reports on the pandemic with the USA in recent days are somewhat disturbing for investors, which is manifested by the gradual strengthening of the yen, the Swiss franc or the gold.

This is a consequence of the continuing weakness of the dollar due to Federal Reserve action (additional supply of dollars in the market), but the high uncertainty about the path of activity growth may increase demand for safer asset classes as the autumn approaches.

The transitional period between the closure of economies and the attempt to assess what the growth path will look like suggests a potential lack of significant changes in the broader market in the coming weeks. The first months of strong growths are over. However, much more important will be the development of further growths and the disproportions between the economies. It can be seen that the recovery path has encountered obstacles in the USA, which did not occur in Europe to a comparable extent, and this is something that is also responsible for the slightly better condition of the euro.

On Friday, the zloty is among the best

Under these circumstances, the Polish currency finds itself quite well despite a small range of fluctuations in recent days. This afternoon, the zloty was in the top three currencies of emerging countries in terms of its relation to the dollar, the euro, the franc or the pound. It is, of course, supported by the continuing weakness of the dollar and increases in equity markets, i.e. an overall increased level of risk appetite.

For the zloty, it is the last trade day before the second round of the presidential election in Poland. Pre-election polls showed that the race for the presidential seat is too balanced to place any of the candidates in a better position to win. However, the impact of the election on the zloty is very limited, and this will probably not change when the results are announced.

The potential victory of the opposition candidate could mark the beginning of some change in the Polish political arena, although in the short term external factors, including those related to the pandemic and the path of economic growth, will play the greatest role in changes of the zloty's value.

The EUR/PLN quotations were moving just below 4.47 in the afternoon, in the range coinciding with and around yesterday's level. They should also run within this range until the end of the day and on Monday if no unpredictable and relevant news from the pandemic front or international trade is received by the market.