Zloty under pressure (Afternoon analysis 28.09.2020)

Despite the positive sentiment in the market and the lack of dollar's appreciation, the zloty depreciates on Monday afternoon. The EUR/PLN exchange rate exceeds 4.58 PLN and is the highest since April.

Tuesday and Friday - days of greater fluctuations

Monday passed with positive moods on the broader market. The main market indexes in Europe were gaining about 3% in the afternoon, their counterparts in the USA slightly over 1%. The dollar was also in a slightly weaker condition today, and its further appreciation was stopped by the improving sentiment today.

However, the changes in the case of the dollar were not significant. Today, the EUR/USD exchange rate fluctuated around 1.162-1.168, and two hours after the start of the session on the New York Stock Exchange, it oscillated around 1.1650, i.e. 0.2% above Friday's closing level. Looking at it a little wider, the dollar index according to Bloomberg (which also includes currencies of emerging countries) was about 0.15% below Friday's level.

For greater changes in the quotations of the US currency one has to wait until tomorrow when the debate will take place before the US presidential election. The publication of the report on the US labour market on Friday may cause even greater movement.

The president of a big bank is not afraid of negative rates

Christine Lagarde, President of the European Central Bank, testified before the European Parliament today. The issue of the euro exchange rate was once again raised, and Lagarde stressed once again that the exchange rate is not an ECB objective. However, it does have an impact on inflation, and that is why the subject has been coming back more and more often in recent weeks.

Lagarde did not want to speak about the euro exchange rate during the videoconference but said that it was an important part of the interest rate setting. The President of the ECB also added that the bank has a positive experience with negative interest rates, which is not so obvious to other central banks in the world. Therefore, it is likely that if we do not observe another appreciation of the euro at a very fast pace, the ECB will remain aside from the exchange rate debate.

The zloty is weaker today, and it might get even worse

The afternoon was not favourable for the zloty, which was one of the weaker currencies of emerging countries, despite the lack of appreciation of the dollar and a positive mood in the broader market. The EUR/PLN exchange rate, exceeding 4.58 PLN, reached its highest level since the first week of April and approached the March highs (about 4.64). The USD/PLN quotations increased to more than 3.93 PLN, the CHF/PLN to more than 4.24 PLN and the GBP/PLN to more than 5.05 PLN, responding to optimism before the beginning of talks (Tuesday) on the new trade agreement between the UK and the European Union.

The following days may bring greater volatility in the currency market. And if we observe a combination of a gaining dollar and a marked increase in risk aversion, the zloty may be subject to significant supply pressure, given its currently somewhat weaker condition.