Zloty still weak (Daily analysis 9.06.2020)

The deterioration in market sentiment strengthens the dollar, although the US currency is still in a weak condition compared to levels two weeks ago. The zloty, alongside the Mexican peso and the rouble, is the weakest currency among emerging countries.

The dollar reflects market sentiment

After a few days in a row of positive sentiment, we observed a slight deterioration and an increase in risk aversion in the morning. It expressed itself, among other things, in a drop in the main market indexes (to about 3% in Europe), as well as in an appreciating dollar.

The main currency pair's quotations were far away from the 1.13 boundary, and around midday were at 1.1250, but these are still very distant levels from those we observed two weeks ago (below 1.09). This shows that the dollar still has a long way to go if market sentiment deteriorates.

Going beyond the horizon of current optimism about the opening of economies, the end of the year holds some risks of deterioration of sentiment - among others, the elections in the USA and the accompanying potential geopolitical tension between the USA and China, or UK trade negotiations with the EU.

A slight decline in the pumped-up optimism balloon in the broader market was enough to significantly reduce demand for emerging countries' currencies. This is a natural effect of the aforementioned increase in risk aversion, but once again, the zloty turned out to stand out unfavourably in this context.

Signs of weakness are becoming more and more visible

Recently, the internal weakness of the Polish currency has been clearly visible. This was not apparent at first glance due to the dominance of positive sentiment in the broader market, but the zloty is consistently at the end of the stakes in terms of the condition of emerging country currencies (EM).

Today was no different and among the EM currencies, which lost more to the dollar and the euro than the zloty, there were only two more currencies - the ruble and the Mexican peso. This is most likely the result of a rather unexpected decision of the National Bank of Poland to cut interest rates in Poland, which is apparently affecting the zloty. Therefore, the Polish currency may be slightly more sensitive (than before the NBP's decision) to the deterioration of market sentiment, and also gain relatively less if it improves.

Today's zloty's quotations did not differ significantly from those of the previous days - the EUR/PLN exchange rate was approx. 4.45, the USD/PLN pair was approx. 3.94, which remained far from the weakness of the Polish currency in mid-May this year. However, we should anticipate that the growths of the past few weeks will be reversed if we continue to observe the appreciation of the dollar on the global market.