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Daily analysis 24.02.2017

24 Feb 2017 12:20|Marcin Lipka

Comments from both the US Secretary of the Treasury and the White House’s spokesperson do not indicate that the new American administration wants to withdraw from its promises regarding changes in the tax system. The zloty wore-off slightly. However, the EUR/PLN remains near the area of 4.30.

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.

Positive perspectives for the dollar

We have received a few new statements from the US Secretary of the Treasury. Steve Mnuchin spoke with The Wall Street Journal, CNBC and Fox Business. The headlines could suggest that the current administration tries to withdraw from its promises made during the election campaign.

A slight commotion has been caused by interpretation of one statement from Mnuchin. He was to say that the US administration does not expect that the reforms will improve the economic situation of the USA. This would deny the theory that lower taxes, as well as changes in regulations, would not increase the economic growth nor would they increase the tax base. This would only cause a higher deficit, as well as a flat GDP growth.

However, Mnuchin actually did note that the economy will not accelerate this year (but not in general), due to anticipation of the implementation of changes next year (the fiscal year 2018 begins in the USA in October 2017.) Moreover, an information regarding the implementations of changes in August is not precise. During his interview with Fox Business Mnuchin emphasized that this is the deadline for establishing all details.

However, the tax changes plan alone should appear within the forthcoming weeks. This is because President Donald Trump is obligated to send the project of the next year’s budget, as well as the draft of the federal incomes and expenses for ten years, by mid-March. This was confirmed by the White House’s spokesperson, Sean Spicer, during briefings on both Wednesday and Thursday.

The CNBC interview with the US Secretary of the Treasury left no doubts regarding the will of lowering taxes. However, the matter of the Border Tax Adjustment remains unclear. This is because Donald Trump, as well as some of Republicans have remarks regarding its current shape. It is likely that the system will come up with some kind of methods to support export and decrease attractiveness of import. At least, this is what Mnuchin suggested.

Donald Trump’s testimony in front of the Congress this Tuesday will be crucial for the dollar. If this testimony suggests changes in taxes, the USD should benefit from this information. Another stage is sending the budget project to the Congress. If this document includes the majority of the election campaign promises, this will be positive for the profitability of the American bonds, as well as for the dollar. At least in the perspective of the forthcoming months.

Zloty loses value

Due to the stronger yen and decreasing optimism in the foreign stock markets, the zloty lost value slightly. However, these changes were not significant. The franc remains below the 4.05 level and the EUR/PLN is near 4.30. The zloty is stable against the forint as well (71.50).

It’s difficult to find any local impulses that could disturb the zloty’s quotations for the time being. The PLN will mainly be determined by the global sentiment towards the emerging market currencies. However, Trump’s testimony on Tuesday will be significant for the USD/PLN. This will either confirm changes in the American tax system (positive for the dollar) or increase the uncertainty regarding their implementation. Taking into consideration the signals from the White House, the first scenario seems more likely, for the time being.

24 Feb 2017 12:20|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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