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Daily analysis 17.01.2017

17 Jan 2017 12:33|Marcin Lipka

The dollar wore-off after the interview with Donald Trump. Will Theresa May’s testimony be crucial for the pound? The zloty has been remaining stable against the euro. Changes on the USD/PLN and the GBP/PLN.

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

  • 12.45: Theresa May’s testimony regarding Brexit.

Weaker dollar

Despite the lack of macroeconomic data or signals from central banks, the dollar clearly wore-off this morning. The EUR/USD increased significantly and the USD/JPY tested the area of 113, which is its lowest level since the beginning of December 2016. This overvalue of the American currency has most likely been caused by Donald Trump’s interview with The Wall Street Journal.

Trump said that the dollar was already too strong in part part because China holds down its currency, the yuan. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” said Trump. It’s worth noticing that the topic of the yuan is not new and it has been brought up by the American authorities quite often. However, according to Bloomberg, the last time that the Treasury Department called China “the currency manipulator”, was in 1994.

It’s difficult to say whether Trump’s opinion refers to the entire currency basket against the dollar, or perhaps only the above mentioned yuan. Nevertheless, his statement may be interpreted as an element of a more protectionist attitude, rather than a will to wear-off the dollar.

Regardless of the WSJ interview, we continue to expect that the dollar will remain strong within the forthcoming months. It’s likely that Trump’s testimony on Friday, will consist of several economic elements (lower taxes, higher expenses, less regulations, etc.) which are favorable for the dollar and increase the chances for its appreciation in the first half of the year.

Theresa May’s testimony

Information from the British press, as well as the publication from the conservative think tank known as Policy Exchange (both cited in our yesterday’s daily analysis), suggest that today’s testimony from Theresa May can be crucial.

We can’t exclude that the British prime minister will suggest that the United Kingdom will strive for a total control over immigration. This would mean that the country wishes to resign from the EU exchange rules. Instead of this, the United Kingdom will negotiate a new trade agreement, which will be based on the World Trade Organization rules.

Nevertheless, it’s likely that this testimony will leave space for the sector agreements. They would allow some sectors (automotive sector, for example), to conduct their activity as they have been doing so far. However, this attitude would be unfavorable for the British currency, especially for the finance and insurance sector. In 2015, it created a 54 billion pounds surplus for the foreign services exchange.

However, the pound may calm down relatively quickly. This is because the real problems will not appear until 2019 (the year of actual Brexit). In the short-term, investors may come to a conclusion that the Brexit topic will leave the headlines, because the doubts regarding the Brexit parth will decrease.

Zloty is stable

The Polish currency remains stable. The EUR/PLN is still near the 4.37 level. Today’s wear-off of the dollar mainly translated to the USD/PLN evaluation. This may suggest that the general evaluation of the zloty (against the euro or the franc) will be less sensitive to potential changes on the American currency, in the future.

We don’t expect any larger changes on the zloty within the next few days, except for those that would directly result from the global moves on the pound or the dollar, for example. However, Thursday’s data regarding the Polish economy for December will be a significant event. This will show whether a positive result of retail sales for November, as well as a rebound of the building production has been continued.

17 Jan 2017 12:33|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

16 Jan 2017 16:49

Afternoon analysis 16.01.2017

16 Jan 2017 13:18

Daily analysis 16.01.2017

13 Jan 2017 17:12

Afternoon analysis 13.01.2017

13 Jan 2017 12:40

Daily analysis 13.01.2017

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