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Daily analysis 23.01.2017

23 Jan 2017 13:02|Marcin Lipka

The dollar is weaker after Trump’s inaugural testimony. The market is still anticipating the actions from the new administration, which will support development. The pound is stronger before the verdict from the Supreme Court and Theresa May’s visit in the USA on Friday. The EUR/PLN remains near 4.37.

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.

Trump wore-off the dollar

This week has started with a clearly weaker dollar. The EUR/USD is near 1.0750, which is approximately 100 pbs less than it was on Friday afternoon. The USD/JPY is clearly lower as well (113.50). These levels are the consequence of the fact that Donald Trump’s inaugural testimony was more protectionist and less market-oriented.

Statements from the American president were missing references to changes in the economic policy, which were announced during the campaign. It seems that Trump saying a similar thing as George W. Bush said during his inaugural speech in 2001, would be sufficient to support the dollar. At that time, Bush said that, “And we will reduce taxes to recover the momentum of our economy and reward the effort and enterprise of working Americans.”

Instead of that, Trump’s testimony consisted of many definitively more protectionist excerpts. He said that, “Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength.”

However, some brief references to plans of tax decrease, as well as of changes in regulations, appeared later on the official website of the White House. Despite this, the market was mainly focusing on Trump’s testimony, which should be an announcement of fulfilling the most significant presidential projects.

Therefore, we can claim that this testimony awakened anxieties that were dominating before Trump’s elections and regarded his policy to wear-off the dollar. Moreover, according to The Wall Street Journal, the American president will present his plans regarding immigration and the foreign trade this week. This may increase anxieties that the United States will extend their protectionist actions.

It’s still more likely that the dollar’s strength will return within the forthcoming weeks. A decrease in taxes for companies and households is supported by Trump, as well as by the majority of the Congress. The same goes to changes in regulations or repatriation of profits from the American enterprises. The matter of infrastructural expenses will most likely be accepted as well. Moreover, the American economy is in a better condition than economies of the other developed markets. Therefore, the Fed should continue to raise interest rates. The ECB, the Bank of England and the Bank of Japan, most likely will not decide to perform rate hikes within the forthcoming quarters. In conclusion, the dollar should receive many positive signals. However, we can’t rule-out that they may appear slightly later than it was previously expected.

Pound is increasingly higher

Due to weak quotations of the American currency, as well as to the pound’s global rebound, the GBP/USD is near 1.2450, which is a 3.5% increase in comparison to last week. Tomorrow, the Supreme Court will present its verdict regarding the necessity (or its lack) of voting over the Brexit conditions by the British parliament.

However, last week Theresa May emphasized that she wants the parliament to vote over the Brexit conditions. This should decrease the significance of the Supreme Court’s verdict. May’s visit in the USA is scheduled for this Friday. It’s possible that it will concern the future trade relationship between the United Kingdom and the United States. On one hand, this may secure interests of the British companies in the USA. On the other, this may become an element in negotiations with Brussels. The market may interpret these actions as positive and continue to support the pound, especially if the dollar remains weak.

Zloty is stable

The zloty remains relatively stable at the beginning of a new week. The EUR/PLN remains near 4.37 and the franc is within the range of 4.07-4.08 PLN. However, the dollar’s global weakness pushed the USD/PLN to its two-month minimum. The zloty’s stabilization is the base case scenario for the forthcoming hours, especially that no significant macro data has been planned.

An interesting information appeared on the website of the Ministry of Finance today. It remains unclear, whether the Eurostat will qualify the LTE auction as a one-time income to the budget, or will it declare that this will be divided into next fifteen years. If the latter option prevails, the 2016 deficit will exceed 2.5%, but it will remain below 3% (according to estimates from Leszek Skiba, who was cited by the Polish Press Agency.) However, recently we could have expected a value which would be nearer to 2.0%, due to definitely lower than expected investments from the local government, as well as better than estimated tax income.

23 Jan 2017 13:02|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.

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