Still without a breakthrough in the context of US tax system reform. The pound under pressure after another UK Cabinet resignation and Brexit bill. The volatile zloty's quotations, with a rather dovish tone of the Monetary Policy Council. The EUR/PLN pair close to the 4.23 boundary.
The most important macro data (CET - Central European Time). Surveys of the macro data are based on the information from Bloomberg unless noted otherwise.
- No macro data that can clearly influence the analysed currency pairs.
Uncertainty connected with the US tax system
The EUR/USD quotations continue to move around the 1.1600 boundary. No important macroeconomic data has been published from the eurozone this week. In the US, the readings' calendar is also empty, but investors are focusing on speculation about changes in the tax system.
Yesterday, we drew attention to the "The Washington Post" reports on the possibility of postponing tax reductions for companies to 2019, while today, Bloomberg news agency writes that the Republican representatives of the Senate "are considering keeping seven tax thresholds - which is a departure from the House of Representatives' law, that assumed their reduction to four". It is also unclear what would be the revenue bonds for specific thresholds. According to the Bloomberg's reports, on Thursday, the Republican senators will not present a precise plan of tax changes, even though such a project was announced earlier.
Bloomberg also interviewed the US Treasury Secretary yesterday. Steven Mnuchin "did not rule out a delay in starting the tax rates reduction for companies", but at the same time, he stressed that the administration "strongly prefers" that corporate taxes should be reduced from 2018. As a result, it can be said that, despite the detailed tax change plan presented by the House of Representatives last week, discussions between senators are facing more and more problems. Until the fiscal stimulus is resolved, the dollar may stay within a very limited range of fluctuations.
The pound's weakness
At the beginning of the week, the pound tried to pare the losses recorded just after last week's BoE meeting. The GBP/USD reached the level of 1.3170-80, but the British currency's appreciation was disrupted by British government's problems. Two of its members have resigned, which weakens the position of Prime Minister May, which was already worsened by the last elections.
Today, the Financial Times reported that Brussels gave Britain two-three weeks to set out how much it intends to pay for Brexit. The European Union continues to maintain its view that talks about new relations or transitional agreement are impossible until a Brexit bill is set. In the morning, the pound depreciated significantly and the GBP/USD pair dropped below the 1.3100 limit. The GBP/PLN pair was close to 4.77.
The zloty slightly stronger but the MPC's statement rather dovish
Around midday, the zloty is slightly stronger in relation to the main currencies than it was at the beginning of yesterday session or at the same time yesterday. The better zloty's condition, however, is not a consequence of yesterday's MPC meeting, which was rather dovish. First of all, President Glapiński stood by his view that interest rates would stay unchanged until the end of 2018.
On the other hand, minimal changes were visible in the statement. In October, the Council stated that "despite the wage dynamics acceleration in the economy, core inflation remains low" and, after November's meeting, it estimates that "all core inflation measures have risen, although at a moderate level". A part of last month statement about the fact that' the risk of the inflation target being permanently exceeded in the medium term is limited' has been removed.
However, these were symbolic modifications, taking into account that the inflation rate, according to the NBP's estimates, in 2019 should reach 2.7% (the middle of the range announced during the conference - 1.7-3.7%). Moreover, the press conference, which at times gave the impression that there was a strong division within the council between those who wanted earlier rate hikes and those who shared the president's view, showed that a change in the consensus requires more pronounced inflationary pressure.
The next hours on zloty should not bring any major changes. The EUR/PLN pair is likely to remain close to the 4.23 boundary. The lack of key data from the global economy in the afternoon will probably strengthen the stability in other currencies.