Daily analysis 25.04.2017

The euro has sustained the majority of its growths from yesterday. The pound is getting weaker. What should we expect from tomorrow’s announcement regarding the tax system? The zloty remains relatively strong. The dollar and the pound are testing the area below 3.90 PLN and 5.00 PLN, respectively.

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

• 15.00: The American real estates prices according to S&P CoreLogic Case-Shiller (estimates: positive 5.77% ).
• 16.00: Sales of new houses in the USA (estimates: 584k).
• 16.00: The American consumer sentiment index (estimates: 122.5 points).

Strong euro and weak pound

The majority of yesterday’s moves has been continued. Both the dollar and yen are quote weak. However, the euro and some of the emerging market currencies have sustained their yesterday’s growth. What’s interesting is that the pound has been losing value, even though a more stable political situation on the European Union should also support the British economy.

It’s possible that investors have been looking at this matter differently. Some of them might have considered the pound as a safe haven in the case of Le Pen’s victory in France, since the United Kingdom will leave the European Union. However, this argument has lost its significance. In addition, the pound’s wear-off against the euro might have resulted from expectations that the ECB would alter its extremely mild monetary policy.

Potential victory of Emmanuel Macron in the French presidential election may also cause negotiations regarding Brexit to become more tense. With a strong support from the centrist parties of the leading EU countries, Brussels would gain a better negotiating position. This may also impact the behavior of the Brits and reduce chances for a positive result of the Conservative Party in the parliament election on the 8th of June. As a result, the pound may remain under pressure. This is especially taking into consideration that the British macroeconomic data would be negative.

Speculations regarding Wednesday

The tension before tomorrow’s testimony from Donald Trump is increasing. According to The Wall Street Journal, last week the US president requested for a plan regarding lowering taxes for legal entities down to 15%, even if this would mean a reduction of the budget income.

It has also become more likely that a plan regarding the tax changes for households will also be presented on Wednesday. During the campaign, this plan was said to be beneficiary for the wealthiest. However, the US Secretary of the Treasury, Steve Mnuchin, said yesterday that, “we’ve been clear on what the President’s objectives are for tax reform: Middle income tax cut - a priority of the President’s.”

Wide discussion regarding the tax changes should be positive for the dollar. However, the road to accepting this motion may be long and bumpy. Those Republicans that want to keep the budget deficit under control, may block the idea of too significant reduction. In addition, neither the previously planned savings regarding new healthcare regulation, nor additional incomes from the border tax are being fulfilled. Therefore, the deficit may enlarge even more, even if the White House estimates a higher economic growth. Tomorrow’s reaction on the dollar will mainly be determined by the opinion from the Republicans, rather than by the plan alone.

Zloty remains strong

The zloty has sustained its growth from yesterday. The EUR/PLN is within the range of 4.23-4.24. Moreover, the dollar and pound have went below 3.90 and 5.00, respectively. The only currency that has been quoting larger growth than the zloty is the Turkish lira. On one hand, this hows the strength of the PLN and on the other, its sensitivity to the global events, particularly those within the eurozone.

The risk of the zloty’s wear-off will remain limited, as long as the sentiment in the EU markets is positive. Moreover, a potential strengthening of the dollar tomorrow will most likely only be limited to the USD/PLN.