Daily analysis 12.01.2017

12.01.2017 13:07|Marcin Lipka

Yesterday’s testimony from Donald Trump caused a clear pressure on the dollar. Clear declines in profitability of the American debt. Series of testimonies from the Fed members will most likely have a limited impact on the USD. The zloty is stable after yesterday’s neutral announcement from the MPC.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

  • No macro data that could significantly impact the analyzed currency pairs.

Larger protectionism vs fiscal stimulation

The market expected that Donald Trump’s testimony will present suggestions regarding an increase in fiscal expenses and a decrease in taxes. The dollar’s index was near the level of 103 points, which only was 1% below its fourteen-year record. However, the press conference turned out differently and slightly reminded investors, why Trump’s potential victory was considered negative for the USD before the presidential elections.

Trump’s testimony was dominated by protectionist statements. He repeatedly suggested the necessity of additional custom duty for imported products. Moreover, Trump also suggested the necessity of renegotiating trade contracts not only with Mexico, but also with China or Japan.

It’s obviously difficult to say, how many of these suggestions will come true, especially that the trade contract negotiations may last for years. Nevertheless, this doesn’t change the fact that instead of the announcement of milder fiscal policy, the market received suggestions of additional custom duty, which may cause a decrease in the global GDP in the long-term.

This caused the dollar to go approximately 2% lower, in comparison to its maximum from yesterday. Profitability of the American debt decreased clearly, as well. This index was approximately 10 base case points below its yesterday’s maximum on the five-year bonds. This also suggests limited expectations regarding the future interest rates in the USA.

Trump’s testimony may clearly limit growth pressure on the dollar. Moreover, in the case of announcements of decreasing taxes and increasing expenses, investors may fear the extending discussion regarding higher custom duty, as well as disturbance of the investment sentiment. Therefore, eventual growth of the dollar may be more limited than previously expected and the forthcoming weeks may be negative for the USD.

Testimonies from Fed representatives

There are five testimonies from the Fed representatives planned for today. However, it’s worth noting that four members of the Federal Reserve have already testified recently (Evans, Lockhart, Kaplan, Harker). Bullard’s views are currently considered as extremely dovish. Therefore, even their slight modification won’t impact the market significantly.

Janet Yellen will make her testimony at 1.00 AM (CET). According to information published on the Fed’s website, her appearance is prepared by the Fed’s Education Department and its main participants are teachers. However, the Q&A session is planned as well, but taking into consideration the conference’s topic, economic matters will most likely be ignored. Therefore, this event’s significance may also be very limited.

No hawkish suggestions from MPC

Yesterday’s press conference after the MPC meeting did not include any elements that would suggest the will of sooner monetary tightening. Chairman Glapiński suggested that he does not see any need for raising interest rates in 2017. Moreover, he claims that inflation most likely will not exceed the 1.5% level, which is the NBP’s lower limit. Therefore, we may assume that the Council will anticipate a clear growth of both inflation and economy. If this happens, a more serious discussion regarding the monetary changes would begin.

When it comes to tomorrow’s decision from the rating agencies, the base case scenario is that both Fitch and Moody’s will leave Poland’s loan credibility unchanged. This scenario may slightly strengthen the zloty. However, this move wouldn’t be strong enough to push the EUR/PLN below 4.35. The dollar’s global wear-off caused the USD/PLN to near the 4.10 level. Taking into consideration the impact of Trump’s testimony, it’s likely that the correction on the American currency will extend and the dollar may reach the area of 4.00 in the short-term.



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