Daily analysis 14.09.2017

The return of discussions on decreasing the US tax supports the US currency. The franc incurred losses in relation to the euro after the SNB statement. The Bank of England meeting and US inflation data are the key events in the afternoon. Next dovish comments from the MPC. The EUR/PLN tested the 4.29 boundary before midday.

The most important macro data (CET - Central European Time). Surveys of the macro data are based on information from Bloomberg unless noted otherwise.

• 1.00 p.m.:Publication of statement and minutes after September's Bank of England meeting,
• 2.30 p.m.:August's CPI inflation from the US (estimates: 1.8% YOY and 0.3% MOM, excluding fuels and food, 1.6% YOY and 0.2% MOM).

Stronger dollar before the inflation data publication

The next day in a row, the US stock market trading ended with records on the S&P 500 index. However, yesterday this element was not the one that mainly pushed the yields of U.S. Treasuries and the dollar's up. The higher dollar's valuation was primarily a result of the refreshed discussions on tax system reform.

Yesterday, the Republican leaders claimed in the media that the precise tax reform plan will be published in a week that begins on September 25th. The market expectations of a possible reduction in fiscal burdens for businesses and households also increased when President Trump was hosting the Senat's representatives in the White House for the second day in a row. It is possible that the president is trying to build a cross-party consensus on tax reforms, for example, by increasing the benefits for the middle class at the expense of the smaller decreases for those with the highest wages.

On the other hand, given the White House's relations with Congress in recent months, the actual chances for broad consensus are relatively limited, especially since the relations between the president and the Republicans are worse than expected just after the election. It seems that the market valued a little higher probability of any reform, as it simply fell to none in the past few months.

During today's session, investors are likely to mainly focused on The US inflation readings. A special attention will be devoted to the core inflation behaviour (core CPI). From March 2017, it fell from 2.3% YOY to 1.7% YOY in July. The economists' consensus assumes that the downward trend on the core CPI will be unchanged and the CPI will fall to 1.6% YOY. If that happened, then we would have to deal with the levelling up with the 6-year lows. Deeper decline (by 0.1 percentage point) has caused that August's core inflation in the US will reach its lowest level since May 2011.

Such a slow prices' rise is not an argument to increase the interest rates. In addition, it may also affect the Federal Reserve's statement during the next week's meeting. Although the Fed takes into its estimates the result of PCE inflation, both indexes are related. Such low inflationary pressures could convince a significant part of FOMC members to revise downward the future forecasts for interest rates and be a negative signal for the dollar.

The franc and the pound

Not long after opening session in Europe, the Swiss National Bank (SNB) published a statement after September's meeting. As we have already suggested in the past days, there has been a very visible downward revision of the GDP growth for 2017 (from 1.5% to slightly below 1.0%). The inflation outlook for 2018 has been increased from 0.3% to 0.4%.

However, in general, the SNB was less dovish than expected. First of all, the passage on "a clear overvalue" of the franc has disappeared after the European currency has appreciated in relation to the Swiss one in recent months. However, maintenance of the previous message was expected. It is true that the SNB still considers the franc to be "highly valued" and will continue to intervene in the market, however, the message sounds more dovish than the one from June. In spite of the aforementioned changes, the franc weakened against the euro and levelled practically to the lowest levels since the second half of January 2015. Generally, the SNB's fears that the negative impact of the strong franc has decreased and consequently, that the downward pressure on the CHF is likely to be lower.

The zloty is still weak

The national currency remains weak, but its behaviour last night was mainly influenced by the global events. The appreciation of the dollar and yields on US Treasury bonds during the US Wednesday session overvalued not only the domestic but also the Hungarian currency. In the morning, it was almost possible to estimate that since the beginning of the week for the 4 gr euro's appreciation were responsible, in a half, the local factors (Eryk Łon's comments, EC statement, low core inflation, weak data on foreign trade), and in the other half the global events.

The aforementioned relationship was further affected by dovish comments from the MPC. This time Jerzy Żyżyński, in an interview for Bloomberg, stated that interest rates should remain unchanged until the end of 2018 or even longer. On the other hand, he did not support the position of Eryk Łon, claiming that there is no room for decreases in interest rates at this point in the monetary cycle. The EUR/PLN after these reports increased to the 4.29 boundary. This move suggests, that the market is unlikely to be afraid of interest rate decreases, but a longer period of keeping the current monetary conditions.

The afternoon for the zloty can be quite variable. At 1.00 p.m. will be released the statement from the Bank of England. The probability of a rate hike is very small, but it is possible that a group of two members of the British monetary authorities will join the third one to vote for monetary tightening. This would be a strong argument that could make the GBP/PLN to test the approx. 4.80 boundary. By keeping a fairly dovish message (votes 7:2 for no change) we can even be witnesses of the sterling to return close to 4.70 PLN.

Significant movements can also be observed in the USD/PLN pair in the afternoon. Lower than expected inflation in the US should keep the dollar from appreciating. Higher readings than consensus are, in turn, a further growth risk not only by the USD/PLN pair but also the EUR/PLN.