Daily analysis 01.02.2017

President Donald Trump comments regarding the currency exchange rate policy of other countries support the dollar’s depreciation. Positive readings from the euro zone’s industry. Due to investors’ attitude, the American data is less significant than usually. The Polish industrial PMI reached its highest level in approximately two years. The dollar is near the level of 4.00 PLN. The euro remains relatively stable.

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

• 14.15: Employment in the American private sector (estimates: positive 168k).
• 16.00: Industrial ISM from the USA (estimates: 55 points).
• 20.00: The decision from the Federal Reserve regarding interest rates (interest rates will remain within the range of 0.50-0.75%; no macroeconomic data and no press conference).

Words vs facts

The dollar market has been basically only following announcements from the new American administration. Yesterday’s statement from Peter Navarro for The Financial Times (regarding the undervalued euro and the Germany abusing its American, as well as European partners) was the main element of the dollar’s depreciation.

The USD weakness was sustained by statement from President Donald Trump. According to Reuters, he said that, “Every other country lives on devaluation. You look at what China's doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market.”

The discussion regarding the new economic policy from Trump and Republicans has been raging on for many weeks. The market wonders, whether this policy’s elements will support the dollar (lower taxes, less regulations, infrastructural expenses) or will they cause a global economic slowdown because of a more protectionist attitude from the United States.

Taking into consideration the announcements that have been reaching the market, the latter concept seems to prevail for the time being. According to Reuters, this caused January 2017 to be the worst month for the American dollar in three decades. However, it will be very difficult to cause more serious economic disturbances in the short-term. We also need to keep in mind that even words from the most significant politicians in the world have limited impact on currencies in the long-term. Therefore, despite the dollar’s significant overvaluation, as well as increasing uncertainty regarding its future exchange rate, the expected economic changes in the USA should support the USD. If we look at the behavior of the American treasury bonds, they remain relatively high. This suggests that moves on the dollar were too deep, in comparison to changes in other assets.

European industry and American data

This morning, we received positive data from the European Union. After yesterday’s positive readings regarding the GDP growth and a decrease in unemployment rate, IHS Markit informed of a positive condition of the euro zone’s industrial sector. The PMI increased to the level of 55.2 points and reached its six-year maximum. This growth was mainly fueled by the euro zone’s core (Germany, Holland and Austria). However, the peripheral countries quoted a positive result as well.

The Spanish PMI achieved its twenty-month peaks and the Spanish employment component quoted its fastest growth since July 1998. However, comments from the IHS Markit economists also include increasing prices of the production factors. Nevertheless, surveyed entrepreneurs claim that due to a strong demand, they are willing to increase prices for their customers.

This day should theoretically be interesting when it comes for the currency changes. ADP will publish the employment data, which should overlap the official publication from the Labor Department on Friday. Therefore, they may be a certain hint before the payrolls. Additionally, we will receive the ISM index at 4.00 PM and the announcement from the Federal Reserve at 8.00 PM.

However, even if the data is positive, the dollar does not have to gain value significantly. Investors may fear new comments from Trump’s administration, especially that the American president will make his testimony regarding the economic matters tomorrow. It’s difficult to estimate, whether this testimony’s character will be protectionist (negative for the USD) or will Trump speak more of the economic development (positive for the USD).

Positive readings from Poland

The Polish industrial PMI increased to the level of 54.8 points in January. This was its best result in twenty-two months. Moreover, the industrial production was increasing the fastest in approximately three years and new orders accelerated significantly as well. Markti IHS wrote that the employment pace slowed down since December, but it still remains strong.

The data from Poland should support the zloty’s stabilization. However, it’s also worth referring this data to what has been going on in the euro zone. There, the PMI index has been growing at its fastest pace in approximately six years and is currently a the level of 55.2 points. The PMI has been growing in Poland’s region as well (55.7 points – Czech Republic, 56.5 points – Hungary). This suggests that the economic revival in Poland has mainly been caused by external situation, instead of positive local events.

Yesterday, we wrote that the chances for the zloty’s further appreciation are limited, despite the dollar’s weakness, as well as attractive profitability of the Polish debt. Therefore, the base case scenario is that the EUR/PLN will remain near its current level. However, the return of the stronger dollar will be dangerous for the zloty’s stabilization.