Daily analysis 16.01.2017

For the first time in three months, the GBP/USD went below 1.20. Leaks from the British press suggest increasing chances for “hardcore Brexit”. The zloty remains stable after last week’s announcements from the rating agencies. The pound is below the 5.00 level.

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.

Pound’s minimum

This morning’s event is a clear depreciation of the British currency. If we don’t count the sudden GBP/USD decline at the beginning of October (mainly caused by lower liquidity during the Asian session), we are currently observing the lowest level of the pound against the dollar in more than thirty years.

The main reason for the GBP/USD going below 1.20 is information for the British press, regarding tomorrow’s testimony from Theresa May. According to Sunday Times, the British prime minister will present the strategy of leaving the EU, in order to reclaim control over immigration, as well as to stop being dependent on the EU Court of Justice.

Sunday Times’ source from Downing Street confirms anxieties of May’s administration, that her words may cause the pound to reach its new minimum. Ambassadors of the twenty-seven EU countries have been invited to the testimony. According to Sunday Times, this is supposed to decrease doubts regarding the Brexit path.

It is interesting that last weekend, a conservative British think tank published an analysis, which suggests a necessity of “pure” Brexit, instead of “hardcore” or “soft” Brexit. “Policy Exchange” emphasizes that remaining within the EU market needs to be ruled-out. This is because its economic benefits are exaggerated and are of minor help for the British services sector.

“Policy Exchange” is distant from statements that trade exchange based on the WTO rules will be unfavorable for the Brits. Think tank’s analyses show that more than 50% of the UK’s trade is based on the WTO rules. Moreover, there is a surplus of export against import in the foreign trade.

We also need to emphasize that there is still no consistent point of view regarding Brexit within the Tories party. There is a large likelihood that Phillip Hammond disagrees with the views from “Policy Exchange.” The Financial Time quoted his interview with Die Welt, in which he stated that, “Britain would become a low-tax competitor if it was not granted good access to the EU’s common market.”

Of course, it’s difficult to say whether elements from “Policy Exchange” will be included in tomorrow’s testimony. However, taking into consideration that London has been sending, the likelihood of “hardcore” Breixt is increasing. This means that the pound may remain under pressure.

A chance for the dollar

Last week’s press conference of Donald Trump wore-off the dollar. Trump spoke of a more protectionist trade policy, instead of a decrease in taxes or an increase in infrastructural expenses. However, it’s worth noticing that Trump’s testimony this Friday (during the ceremony of his oath), may be dominated by economic matters.

This would be positive for the dollar and would revive the discussion regarding fiscal stimulation, as well as a more restrictive monetary policy. Suggestions regarding a tight cooperation with Republicans regarding economic matters, would also be supportive for the USD. This would decrease anxieties that Congress may be skeptical towards Trump’s plans regarding higher expenses.

No changes in ratings, but dangers remain

For many days we have been taking note that both Fitch and Moody’s will not change the basic parameters of Poland’s rating. Moreover, we claimed that this positive scenario will have a minor impact on the zloty. This is because the Polish currency, as well as the Polish treasury bonds, will continue to evaluate fiscal dangers. Therefore a relatively optimistic result of Poland’s rating will not change this situation.

This week, the zloty will most likely focus on the local economic data (industrial production and retail sales on Thursday) and Friday’s testimony from Donald Trump. The dollar’s global reaction should also show, whether stronger moves on the USD endanger the EUR/PLN, or do they only reflect in the USD/PLN. However, the forthcoming hours should be relatively calm, especially that the American markets are not active today. Therefore, the euro should remain in the middle of the 4.35-4.40 range.