Daily analysis 27.09.2017

27.09.2017 12:43|Marcin Lipka

Janet Yellen's speech was not particularly hawkish, but today's announcement regarding a tax modification plan in the US strongly supports the dollar and the yield on government bonds. The euro, in relation to the zloty is the most expensive that it has been in half a year. The national currency is under significant pressure of the strengthening USD.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2.30 p.m.: Orders for durable goods (estimates 1.0% MOM, excluding transportation: 0.2% MOM),
  • Donald Trump's speech on taxation. Around 10 p.m.

The dollar is supported by expected tax changes

Yesterday's speech by Janet Yellen did not clearly change the situation on the currency market, and even caused a temporary depreciation of the dollar because it presented a relatively large number of elements which did not immediately give a clear signal if the President of the Fed remains relatively hawkish or whether the message from the last FOMC meeting was softened.

However, given the difficulties that Yellen has presented in identifying the causes of worse than expected inflation, the President of the Federal Reserve has not (in any way) withdrawn from the suggested pace of monetary policy tightening. The uncertainty about future price increases is therefore not an argument to stop rate hikes. Moreover, it can be considered as a relatively hawkish signal that should support the dollar as long as macroeconomic data from the US remains relatively good and inflation does not deepen recent lows.

It is also worth noting that investors' attention has started to move quite quickly towards tax changes in the US. During the Asian session, there were noticeable increases in the yields on Treasury bonds. The yields on instrument debt maturing in 2-years has been quoted at its highest levels for almost 9 years and amounted to 1.46%. Thanks to this, the support was also provided to the dollar, almost in relation to all main currencies. According to the Wall Street Journal, the plan of fiscal changes were prepared by leading representatives of the White House and Congress.

Many of the basic assumptions are in line with the pre-election promises of Donald Trump and Republican. Taxes for enterprises are to be reduced from 35% to 20%. The changes will also be applied to households, where the number of tax brackets will be decreased and the scale of deduction will be increased. It is also possible that a reduced rate for the profits of US companies held abroad will be announced. Although those changes are supposed to be announced by US President Donald Trump during his speech in Indiana (around 10 pm), it is possible that this will be the version already agreed upon with the entire government camp.

Of course, as with every event, it is possible that it will fail at its expectations. The absence of details on changes in today's speech by Donald Trump (rates, introduction time, etc.) or hypothetical negative opinions from senators who are afraid of budgetary costs of these modifications are the elements that may reduce the positive message of these plans for the dollar. In general, however, the combination of a relatively hawkish message from the Federal Reserve on probable fiscal stimulation is a positive sign for the US dollar, which may prolong its positive condition.

Zloty under noticeable pressure. Euro most expensive in six months

The zloty has been clearly depreciating since the beginning of the week. Although the catalyst for these changes was a slightly increased risk aversion connected with the elections in Germany and issues concerning the Korean Peninsula, the relatively hawkish statement of the Federal Reserve and the growing chances for noticeable fiscal stimulation in the US are much more important for the zloty. The significant growth of treasury bond yields in the United States and the strong appreciation of the dollar have had a negative impact on the Polish zloty.

The zloty's weakness was also confirmed by its placement in the Bloomberg ranking. Among the 31 currencies of developed and emerging countries, the zloty was in last place this week and lost over 2.5% against the dollar. Further positions are taken by the Turkish lira and the Hungarian forint. It is also a confirmation that the zloty is particularly sensitive to changes in future interest rates in the US and the moods in emerging markets.

Taking into account aforementioned information, the zloty's condition may be dependent on today's market's perception of Donald Trump's speech on a large scale. If the US dollar gains in value after a tax presentation by the US president, the national currency will probably continue to depreciate, not only in relation to the dollar but also to the majority of other currencies.

 


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