Daily analysis 22.03.2017

22.03.2017 12:28|Marcin Lipka

Declines in the stock exchange markets, as well as a decrease in the profitability of the American treasury bonds, have deteriorated the global sentiment. Important voting in the American Congress on Thursday. New, relatively hawkish comments from the Fed members. The zloty lost value due to an increase in the risk aversion.

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.

Declines in stock exchange markets and voting in Congress

Yesterday, the American stock exchange markets have quoted their largest declines in five months. Moreover, the market expectations regarding the future rate hikes have decreased as well. Yesterday at approximately 12.00, the profitability of the American five-year treasury bonds were quoted near the level of 2.02%, only to drop to the level of 1.93% today.

Worse sentiment has also been confirmed by the oil market. This causes the dollar to remain weak. However, the Japanese currency is growing stronger. The USD/JPY is currently near the area of 111.20, which is its four-month minimum. This is caused by the fact that a portion of the carry trade capital has been returning to the yen.

Yesterday’s discussion regarding new healthcare regulation in the USA (a replacement for Obamacare), might have been one of the potential reasons for these sudden changes. Theoretically, this matter wouldn’t have been as exciting if not for the fact that both the tax changes and an increase in infrastructural expenses, are anticipating solutions regarding health care.

Moreover, the Republicans shouldn’t experience difficulties in voting-though the new regulation, which is supported by Paul Ryan and President Donald Trump. This is because they have 237 of 435 places in the United States House of Representatives. However, some Republicans find the offered modifications as not sufficiently complex to change the general conditions of Obamacare. Others claim that these changes may deprive many citizens of their health insurance.

This voting is scheduled for Thursday. Usually, the government party is certain of its victory. Therefore, if the regulation is not denied in the next few hours, it will become more likely that it will be supported by the House of Representatives. This will show, whether the recent changes were actually a result of the discussion regarding the healthcare regulation. This will also be a crucial information for the dollar. If the Republican plans are accepted, the dollar should gain value.

New comments from Fed

The market has mainly been following the events in the Congress. However, it’s also worth taking note that the Federal Reserve members have sustained their recent views.

Yesterday, Loretta Mester claimed that she supports gradual rate hikes for this year, if the economy develops in consistency with expectations. She also claimed that her forecasts include more than three rate hikes for 2017. Eric Rosengren has yet again warned about the dangers in the real estates market. This may be interpreted as a suggestion of low finance costs for such ventures.

Increasing risk aversion is negative for PLN

Declines in the developed markets stock exchange, as well as an increase in the yen’s value, are negative information for the emerging market currencies, including the zloty. However, the PLN reduction has not been severe. The euro remains below the 4.30 level and the dollar only is 0.02 PLN above its five-month minimum from yesterday.

This may be a result of the dollar’s weak condition, as well as of a decrease in the profitability of the American debt. The raw material currencies have been calm regarding the recent market events as well. Therefore, until the sentiment towards the emerging market currencies remains positive, the zloty’s overvalue will remain relatively limited.



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