Daily analysis 27.11.2017

This was an important week for US currency. At the beginning of the week, the weakness of the dollar continued. The good situation for emerging market currencies continues. The zloty benefits from a low level of risk aversion. The EUR/PLN pair is close to the 4.21 boundary. The franc depreciated below the 3.60 level.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• No macro data that clearly influences the analysed currency pairs.

Important week for the US currency

The weakening of the strong dollar in recent days was caused by fears about the inflation growth pace in the US and the increase of the euro's value due to positive events in the eurozone's economy. The growing chances of forming a government coalition in Germany also pushed the EUR/USD pair above the 1.1900 level.

The current week may also be important for the dollar. Firstly, it is likely that on Wednesday or Thursday, the US Senate will vote on the tax system changes proposed by the Republics. Over the weekend, the Congress Budget Office (CBO) published estimates that the increase in the deficit over the next decade due to fiscal changes will amount to 1.44 trillion USD, which is within the previously agreed limit of 1.5 trillion USD. The CBO also estimated that it is too early to evaluate the tax change impact on the GDP, so there is no data on the dynamic assessment of the proposed cuts. This would probably decrease the costs of the reform slightly, which could reduce the opposition to this project among several Republican senators.

However, the Senate's draft differs from the version that was voted on by the House of Representatives. As a result, even if the Senate's proposal is implemented, a combined (compromising) version of the two Chambers of the US Congress will probably have to be worked out, which will also be voted on (perhaps at the beginning of December) and only then can this version be placed on President Trump's desk.

However, it is probable that even before the process of the final agreement, it will be possible to estimate the chances of implementing a corporate tax cut from 2018. The higher the fiscal stimulus is, the more likely that recent dollar falls are able to recover. Failing to introduce fiscal changes is a risk that deepens the USD's depreciation. It seems that the coming days could be crucial to this issue.

Apart from the elements related to the tax reform modification, it is also worth noting that important inflation data for the eurozone and the US will be published on Thursday. In the case of both economic areas, the data has recently failed. The currency should significantly increase in value, depending on where it will rebound earlier (for a long period of time, it seemed to be in the United States, but now the confidence among market participants is much smaller). The eurozone inflation data (preliminary for November) and the US inflation data (PCE for October) will provide some guidance.

The zloty benefits from good sentiment

The zloty continues to benefit from good sentiment for the eurozone as well as to emerging market currencies in general. The Polish currency, similar to the Mexican peso or the Czech crown, has gained over 1.5% in relation to the dollar last week. The majority of Asian currencies also strengthened against the USD by more than one percent. On the other hand, the Turkish lira was under very clear pressure due to an overly accommodative monetary policy (2% loss to USD) and the Chilean peso (1% weakening to USD), where the result of the first round of presidential elections failed to meet investors' expectations.

The zloty's good condition, combined with the franc's weakness, translated into a CHF/PLN pair fall to 3.59. It can be stated that the Swiss currency is essentially at pre-black Thursday levels from mid-January 2015, when the SNB released the peg in relation to the euro. On the eve of those events, the franc was quoted at the level of 3.54%. Moreover, one point is missing to reach the lowest level from December 2014.

The recent strengthening of the zloty is beginning to attract the attention of certain MPC members. Considered a dovish member of the MPC, Eryk Łon, in an interview for the PAP, stated that we should watch the ECB's policy and try to act in a way that counteracts possible threats that could occur due to the significant risk of further zloty appreciation against the euro. After this publication, the zloty weakened slightly, however, it seems that currently, the global sentiment towards emerging market currencies is much more important for the PLN than other reports stated.