Daily analysis 28.03.2017

28.03.2017 12:32|Marcin Lipka

It remains unclear, which version of tax changes will be discussed by the Congress. Statements from the ECB senior economist do not suggest rate hikes before the end of quantitative easing. The zloty continues to benefit from a positive sentiment towards the emerging market currencies, as well as from the positive eurozone’s accelerating indexes.

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.

Rebound on stock exchange. Dollar remains weak

The American stock exchange market managed to work-off its losses on Monday. However, the profitability of the American treasury bonds went clearly below its level from Friday. This continues the depreciation pressure on the American currency, despite the dollar’s slight rebound.

It seems that this is caused by uncertainty regarding the version of fiscal changes that the American Congress will eventually discuss. There were many questions regarding this topic during yesterday’s briefing in the White House. However, not many specific answers have appeared.

The Withe House’s spokesman, Sean Spicer, emphasized that many people have been working on the plan. However, he was not able to confirm, whether these changes will actually be implemented before August (a deadline suggested by Mnuchin). Investors may also be concerned by repeatedly mentioned optimistic perspectives for the economic growth.

Yesterday, Spicer claimed that the potential GDP growth in the USA is at the level of approximately 2.6% YOY. Moreover, he claimed that, “the President really would like to see that growth right up in the high 3s, 4s, and 5s.” However, it’s worth keeping in mind that the Federal Reserve has estimated the GDP growth at the level of approximately 2.0%.

The press conference didn’t contain any information whether works on tax regulations will be based on President Donald Trump’s plan (lower tax for companies, no correction of the Border Adjustment Tax; according to Tax Foundation this may result in a larger deficit), or Paul Ryan’s plan (a partial financing of the border tax, among others).

Of course, it’s difficult to guess which plan will the Congress discuss. It would be negative for the dollar, if this discussion is similar to the one about the replacement for Obamacare. Such anxieties may be confirmed by a statement from one of the crucial Republican members of Congress. According to “The Wall Street Journal” he, “cautioned the White House against assembling its own proposal.”

Signals from ECB

Yesterday’s testimony from Peter Praet, the ECB senior economist, has emphasized a slight inflation pressure. Praet claimed that baseline inflation remains low and that there is no sallary pressure. According to the ECB representative, the recent increase in prices was caused by an increase in the raw material prices, which is most likely temporary.

Even though Praet’s testimony didn’t directly refer to the monetary policy, his comments after its publication have suggested that the ECB may be more dovish than it was previously expected. According to Bloomberg, Praet said that, “That’s why we are very careful about any signal on the DFR because that’s the policy rate that you have today (unlike reference rate – author’s footnote).” He also confirmed that the ECB will first taper and then move interest rates, in consistency with the American pattern. In our opinion, this is a negative signal for the euro, especially considering that the majority of the euro’s recent moves were based on hopes regarding sooner rate hikes.

Zloty remains strong

The global demand for the emerging market currencies continues. The zloty benefits from this trend and additionally, its position has been strengthened by positive data from the eurozone, as well as by expected economic acceleration in Poland. As a result, the EUR/PLN is near its one-year minimum (4.25). The PLN/HUF is near the 73 level, which is its highest since April.

This positive sentiment has been confirmed by the bond market. The profitability of Polish treasury bonds went down due to an increasing demand, rather than due to decreasing expectations regarding future interest rates. The PLN should remain strong, as long as the positive sentiment towards the emerging market continues.



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