Daily analysis 29.11.2017

29.11.2017 12:37|Marcin Lipka

The pound was supported by reports regarding Brexit and the dollar by increasing chances for the US Senate to pass a tax system law. Inflation in Germany may be slightly higher than estimated. The EUR/PLN at 4.20 during southern quotations.

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

  • 2:00 p.m.: Consumer inflation (CPI) in Germany for November (estimates: 1.7% YOY and 0.3% MOM),
  • 2:00 p.m.: GDP reading from the USA for Q3 (estimate: 3.2% QOQ annualised).

Strong increases on the pound

Yesterday evening’s event was the news from The Daily Telegraph and later the Financial Times concerning the arrangements related to the Brexit bill. According to both newspapers, the United Kingdom has agreed to pay about 50 billion EUR net in connection to the UK's long-term financial commitments to the member states of the European Union.

Both FT and The Telegraph cited statements made by the British and EU negotiating members. This increases chance that the issue of settling the UK's obligations towards the EU could actually be resolved at the beginning of December. This would open the way for negotiations connected with the establishment of conditions for trade when the UK will leave the EU.

Yesterday's news from the British press was a surprise for the market. The previous reports have indicated that the UK wants to increase its offer to over 20 billion EUR, but it is unlikely that Brussels could meet all of its financial demands so quickly. Immediately after this news was published, an unnamed British government member stated that he does not recognise the newspaper’s findings (Reuters info), however the lack of a straight reaction from the British negotiator gives credibility to the media.

The pound has appreciated significantly. Just yesterday evening, the GBP/USD pair was testing the 1.3250 boundary, and today's quotations of this pair breached the level of 1.3400 despite the relatively good attitude of the US currency on the global market. However, the GBP/PLN pair increased by 6-7 points to 4.75. If it is true that next week's meeting between UK and EU negotiators confirms yesterday's reports, then the pound may continue to appreciate. This would mean that the risk of a “hard Brexit” is limited, and it is also likely that Great Britain, being afraid of losing access to the single market, will also decide to step back on foreign trade issues.

Increasingly closer to the tax reform

Tuesday evening was important in the context of tax changes in the USA. The Senate Budget Committee adopted changes in taxes by 12:11 (as well as party proportions are split). This means that the bill will most likely be voted on in the Senate on Thursday.

It is difficult to say when the market will assess that the tax changes are certain. However, if after the changes are approved by the Senate in the process of agreeing on a common position for the entire Congress, the plan of corporate tax cuts will be pushed forward from next year, then a positive signal can be expected for the dollar. It is also worth remembering that on Thursday, inflation data from the US will also be published. Higher than expected upward pressure on core prices (estimated at 1.4% YOY) could make tomorrow's session important for the US currency. Combining the fiscal stimulus with rebounding inflation and record positive consumer sentiment or long-term unemployment lows may suggest a slightly more restrictive monetary policy of the Fed and therefore give support for the recently declining dollar.

An attempt to decrease the EUR/PLN pair below the 4.20 level

During the first hours of the European session, an attempt to reduce the EUR/PLN pair below the 4.20 level was observed. So far, it has not been successful because the price has returned to the vicinity of this boundary during midday quotations. However, a quite a good sentiment towards emerging markets can be observed, which is the result of a very good condition on foreign shares.

The appetite for EM currencies may dampen the risk of the dollar's appreciation, especially if chances for a fiscal stimulus in the USA increase and the core inflation rebounds from previous lows (see details in the previous paragraphs). Such a scenario would be neutral or slightly negative (depending on the scale of changes) for the zloty's valuation against the euro, but the USD/PLN pair could clearly pare the recent drops.

In the afternoon, another approximate GDP readings from the US for the third quarter will be published, as well as November's preliminary data on inflation from Germany. Data from individual lands shows that prices in Germany could have increased slightly faster than the 1.7% YOY increase reported in economist’s consensuses. This would be a positive sign for the euro, but if the US GDP exceeds estimates (3.2% QOQ in annualised terms) and the afternoon's tax reports would be favourable to the dollar, the zloty might then be slightly weakened, not only to the dollar, but also to the euro.

 


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

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