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Weakening Dollar

INVESTINGWeakening Dollar

The US dollar is continuing to weaken. Despite a weakening dollar, oil is once again retreating. Meanwhile, the Polish zloty and other currencies in our region are not performing as well.

Dollar’s weakness

The post-holiday Wednesday was dominated by a discount in the US dollar. The reason for this is a growing belief in the forthcoming major interest rate cuts in 2024. The current dominant scenario anticipates about six rate cuts in the coming year. This means that if the first cut starts in March, by the year-end we will have only one meeting without a rate cut. The reasoning behind these expectations are a falling inflation on the one hand, and on the other hand speculation about a potential economic slowdown across the globe. In such a scenario, a weaker dollar is what might help the US economy to go through challenging times more calmly. A weaker dollar supports exporters, making their goods more competitively priced. It also hits imported goods, making it more profitable to produce domestically. The markets are already reacting by discounting the dollar, envisioning what’s coming. Since yesterday, the dollar has depreciated almost a cent against the euro.

Oil surprise

Conventionally, oil prices rise with a weaker dollar because this keeps the oil price more stable in local currencies. However, despite the weakening dollar, we are currently experiencing a decline in oil prices. There are several reasons for this. The simplest one is an increase in oil reserves in the US, which are actually growing despite expected decreases. Another reason is a rebound from the peaks reached this week. Furthermore, more logistic companies are returning to the Suez Canal. The US military operation to shoot down many Yemeni drones, which helped stabilize the situation, also helps. However, it should be remembered that any potential escalation of the situation in the Middle East, which cannot be ruled out considering Israel’s actions, could quickly steer oil back on the upward path.

Polish zloty in reverse

The end of the year is not favoring the Polish currency. Despite a clear capital outflow from the dollar to the euro, the Polish zloty is barely maintaining its value against the euro. Usually, in such times, it should be appreciably strengthening. However, this is part of a broader process. Similar problems can be seen with the Czech Koruna and the Hungarian Forint. Apparently, investors are not interested in ending the year with such a strong exposure in this part of the world. This can also be seen in government bonds, where the yield on 10-year papers has risen 0.2% within a week. The new budget deficit will be even more expensive.

For today’s macroeconomic data calendar, pay attention to:

– 14:30 – USA – Unemployment benefit applications,
– 15:00 – Poland – speech by the President of the National Bank of Poland, Adam Glapiński.

Maciej Przygórzewski – Chief Analyst at and Walutomat.

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