After Fed's decision, the most expensive dollar since May 2017. EUR / USD fell to 1,1027

On Thursday, the course EUR / USD fell to 1,1027, and USD / PLN quotes jumped to 3,90 PLN, as a result of which the dollar to the euro and the Polish zloty was the most expensive since May 2017. The dollar also gained to other currencies.

Strong dollar

The Wednesday meeting was an impulse for the strengthening of Green Fed (exactly FOMC). In line with market expectations, the US monetary authorities, for the first time in a decade, cut interest rates by 25 basis points to 2,00-2,25 percent, while declaring openness to further cuts if the risks associated with trade wars and low inflation persist. What surprised us was the ending of the Fed's balance reduction process a month earlier with 2. Another surprise, which in my opinion is only an apparent surprise, was the suggestion that cutting rates at 50 pb at the July meeting was out of the question. In fact, apart from a short episode, it never came into play. The market, however, decided that the tone of the entire Wednesday's hike was hawkish and this explained the subsequent strengthening of the dollar.

While the fall of EUR / USD after breaking the important support zone on 1,1100-1,1110, it can be explained in some way, it is the behavior of USD / PLN not. One big aberration is the increase in the dollar to the zloty in a situation when interest rates in the US can be reduced twice, at the same time inflation in Poland sharply quakes and this year may reach (or even exceed) the level of 3,5 percent, or upper range for the NBP inflation target. Of course, the Monetary Policy Council will not start to raise the cost of money in Poland when other leading banks are lowering it. However, inflation will revive the discussion on the subject, while closing the door to a potential reduction if the domestic economy in the future slows down too quickly.

What are the conclusions of the assessment of the situation on USD / PLN in this situation? Well, it seems that despite the break-up of this pair above the maximum in May, the chance of a sudden acceleration up and attack on the round PLN barrier 4, however, seems small. It is more likely that USD / PLN is approaching a potential turning point and in September for a dollar we will pay 3,80 PLN rather than 4,00 PLN.

Chart USD / PLN, D1 interval. Source: MetaTrader 4 Tickmill UK