Daily analysis 06.02.2017

Due to the comments from the Fed members and confirmation that President Donald Trump wants to lower taxes, depreciation pressure on the dollar decreased. Is the risk of the independence referendum in Scotland increasing? The zloty remains strong during the first part of the European session. The EUR/PLN goes below 4.30.

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.

Three hikes are still on the table

After negative data from the American labor market on Friday (a decrease in salaries growth from 2.9% YoY to 2.5% YoY), some investors expected a decrease in the likelihood of rate hikes in March. However, the market reaction was quite moderate. This was caused by the statements from the Fed members and comments from President Donald Trump.

Initially, profitability of the five-year treasury bonds were losing approximately 7 base case points. However, a significant portion of this move was reduced.

After less than three hours, a testimony from Charles Evans was published. Evans has the right to vote this year and he has presented a relatively positive vision of the American economy. He estimates that the unemployment rate will go down to the level of 4.25% until 2019. Moreover, his projections include a 0.25% faster economic growth for the next two years, which would be related to the fiscal stimulation. Evans claimed that he expected two rate hikes this year, but three would be fine as well. Taking into consideration his attitude towards the monetary policy, a statement such as this seems relatively hawkish, as well as supportive for the dollar.

Comments from John Williams were relatively positive for the dollar as well. The San Francisco Fed representative (without the right to vote this year) told Bloomberg agency that he sustains his support for three rate hikes this year. He also emphasized that there is no need to overreact to single readings. Williams also thinks that the current increase in employment is consistent with his expectations.

We should also take note of Donald Trump’s interview with Fox News. Bill O’Reilly asked him, whether Americans should expect a decrease in taxes this year. Trump replied that, “I think so, yes. And I think before the end of the year I would like to say yes.”

All of these above mentioned elements decrease the depreciation pressure on the dollar. This caused the EUR/USD to return below the 1.0750 level. A certain pressure on the main currency pair has also been caused by increasing uncertainty regarding the French presidential elections in spring.

Speculations regarding Scottish referendum

Speculations regarding the independence referendum in Scotland have constantly been appearing in the context of Brexit. Last weekend, Reuters cited Ross Greer, who is a member of the Scottish Green Party (the main coalition partner of the Scottish National Party). Greer claimed that, “a decision on calling a new Scottish independence referendum could be made within weeks.”

Despite that the risk of Scotland leaving the United Kingdom remains relatively small, speculations regarding this topic impact the pound. The decision regarding repeating the referendum alone could cause a serious pressure on the British currency. This is especially taking into consideration that it may overlap the moment of initiating the Brexit procedures.

Zloty is the strongest since October

The zloty started this week positively and gained approximately 0.02 PLN against the euro. This caused the EUR/PLN to be pushed in the area of 4.28, which is its lowest level since October. Today, the zloty’s strength not only is a result of a positive sentiment in the emerging markets. The PLN/HUF went above the level of 72 and this means that the zloty is the strongest against the foring since August 2016.

It may also seem interesting that the euro weakened by more than 0.20 PLN over two months and the EUR/PLN is just 0.06 PLN above its fourteen-months minimum. However, taking into consideration the external situation (a real chance for the dollar’s growth in the global markets), the zloty’s further appreciation seems increasingly unlikely. However, until the global conditions, as well as the region’s economic perspectives remain favorable (today, the order index in the German industry increased by 8.1% YoY, which was its largest growth in more than five years,) the zloty’s condition should be positive.