Daily analysis 16.02.2017

Despite that the American macroeconomic data was favorable for the dollar, the American currency wore-off significantly. Investors continue to anticipate specific plans regarding changes in the fiscal policy. The EUR/PLN increased by 0.01 PLN, due to the global appreciation of the euro.

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

• 14.30: Building permits and initiated investments in the American real estates sector for January (estimates: 1.23 million in annualized interpretation for both components).
• 14.30: Weekly jobless claims from the USA (estimates: 245k).

Dollar wears-off despite positive data

The behavior of the American currency has been surprising over the past few hours. Apart from Janet Yellen’s hawkish comments, investors also received relatively positive macroeconomic data. Both of these factors should strengthen the dollar.

The baseline CPI increased to the level of 2.3%, which was by 0.2 percentage points more than estimated. Even though the FOMC uses the PCE index for its inflation forecasts, the difference between CPI and PCE has been within the range of 0.4-0.7 percentage points over the past eighteen months. This means that the PCE should move near the level of 1.8% YoY, which is very close to the Fed’s inflation goal (2%).

Yesterday’s readings regarding the American retail sales should be interpreted positively as well. This index increased 0.8% MoM (excluding cars), which was twice as much as estimated. Last month’s data has been revised upward. As a result, the American retail sales increased approximately 5%, which is a very positive result.

The dollar gained value due to the above readings. Moreover, the EUR/USD was pushed to the area of 1.0520. Expectations regarding more restrictive monetary policy were also confirmed by the debt market. Profitability of the two-year treasury bonds reached the level of 1.26%, which was only 4 base case points below its previous record.

However, later on the dollar started wearing-off quite rapidly. This was before relatively weak data regarding the industrial production. Nevertheless, this index’s readings have been negative for many quarters, but the dollar remained strong. The reasons for the American currency’s wear-off are quite mysterious. It’s possible that some of the market participants expected new, relatively hawkish comments from Janet Yellen during the second day of her appearance in front of the Congress. Additionally, investors might have expected new comments from President Donald Trump regarding tax system changes. However, these comments were relatively general and have not cleared the doubts regarding the future actions from the American administration.

We should also focus on the dollar’s wear-off during the Asian session. This was mainly caused by the yen’s strengthening after information regarding the meeting between the US Secretary of the Treasury and the Japanese Minister of Finance during the G20 summit. Investors are afraid that the topic of too high evaluation of the yen (as well as the other currencies) may be discussed, which will be negative for the USD.

There are plenty arguments in favor of the dollar’s growth. However, there is no specific information regarding changes in the American fiscal policy from Donald Trump or the Republicans. This causes investors faith in the dollar’s further strengthening to be limited, despite positive macroeconomic data. Therefore, until there are no specific plans of changes in the tax system, the dollar’s growth may be limited.

Zloty is slightly weaker

The zloty remain relatively stable. However, an increase in the EUR/USD caused the EUR/PLN to reach the range of 4.31-4.32. The yen’s strengthening could also have a negative impact on the PLN. However, this element most likely will not be crucial in the forthcoming days.

Tomorrow, we will receive economic data from Poland for January. Economists are positive towards these readings. Estimates for the retail sales and the industrial production are at the level of 7.7% YoY and 8.1% YoY, respectively. However, the market may focus the most on the building production data. In November, this index started climbing from the level of approximately negative 20% YoY and if it goes above the zero, this would confirm its rebound. This would decrease the chances for the zloty’s wear-off, even in the case of an unfavorable external situation.