Afternoon analysis 28.03.2017

Scotland’s parliament will vote over the independence referendum, one day before implementation of Brexit process. The zloty is near its four-month record.

Pound is stable

At approximately 17.00 CET, Scotland’s parliament will vote Prime Minister Nicola Sturgeon’s plan regarding the Scottish independence referendum to occur between fall 2018 and spring 2019. The Green Party announced their support for this project. Therefore, it seems that the idea of the independence referendum will most likely be accepted.

Nevertheless, the British Prime Minister, Theresa May, has criticized this idea. She claimed that it’s too soon to talk about such referendum, which may hamper the United Kingdom’s position in negotiations. This is because Scotland leaving the United Kingdom may deteriorate the British economic situation.

Less than one month ago, the Fitch agency warned about the potential results Scotland’s separation. These results would be an increase in the UK’s deficit, as well as a negative impact on the British trade. This may cause a downgrade of the UK’s rating.

The decision regarding the Scottish independence referendum may wear-off the pound. This may also increase inflation and limit the Brits’ purchasing power.

The pound had been relatively stable until 15.00. The GBP/USD was near the level of approximately 1.255. The dollar remains weak, but the EUR/USD went down from 1.09 to 1.085. However, due to a weaker condition of the American currency, the USD/JPY was pushed below 110.

Zloty remains strong

Due to the dollar’s weakness combined with the positive sentiment towards the emerging market currencies, the zloty remains strong. The EUR/PLN was slightly above the 4.25 level. The USD/PLN remains near the level of approximately 3.91, which is near its level from before the American presidential elections.

The zloty should be supported by the positive sentiment towards the emerging market currencies in the forthcoming days. It seems that only the decision regarding the American tax system would be an impulse to strengthen the dollar, hence wear-off the zloty.

Tomorrow’s events

At 8.00, Destatis will publish the data regarding the import prices in Germany for February. This index has been increasing over the past two months (positive 3.5% and positive 6% for December and February, respectively). This was caused by a global increase in prices of raw materials (mainly oil).

The market consensus regarding this index is currently at the level of 7% YOY. Over the past few months, it has been one of the main factors responsible for high inflation in Germany. However, the import prices index should be decreasing in the forthcoming months, due to a decrease in the oil prices.

This data will most likely have a limited impact on the euro. This is because that past few months have only brought an increase in main inflation, whereas baseline inflation has been stable at a relatively low level. Therefore, the European Central Bank most likely will not tighten its monetary policy, which would support the euro.