Unquestionable cooling in the American labor market causes concern among investors. The losses of the dollar are limited as the markets are not convinced that there will be a requirement for a rate cut of 50 bp during the Fed’s September meeting. However, a deterioration in sentiment is evident – strengthening the safe haven currencies. The Polish Zloty is doing well in these difficult conditions and should react to news from abroad in the near future. The market’s attention will focus on the Harris – Trump debate (Sept 11), the reading of American inflation (Sept 11), and the ECB meeting (Sept 12).
Key Points:
– Report from the American job market below expectations.
– Expected Fed rate cut by 25 bp in September.
– Expected further ECB interest rate cuts. The focus is on Lagarde’s statements.
Last week’s NFP (non-farm payroll) report confirmed that job growth in the USA fell significantly. In our opinion, there is currently little argument for a sustained economic slowdown, which the markets seem to fear. The data’s deterioration was not significant enough to significantly affect the increased valuations of Fed rate cuts – a decrease of 50 bp in September is considered to have about a 25% probability. In contrast, the retreat from risk contributed to the losses of risky assets, including stock markets. In these difficult conditions – and despite dovish comments from President Glapinski – the Zloty maintained its position. Safe haven currencies strengthened, both the Swiss franc and the Japanese yen experienced appreciation and seem to have regained this status.
This week is filled with key readings, decisions by central banks, and more. On the night of Tuesday to Wednesday (Sept 11), there will be the only televised presidential debate between Kamala Harris and Donald Trump. Wednesday’s (Sept 11) reading of American inflation, a significant potential for causing volatility, competes as the most important reading of the month with the NFP report.
On Thursday (Sept 12), the European Central Bank meeting will take place. It is widely expected to lower interest rates by 25 bp, however investors will focus on signals regarding the next meeting, especially considering the weakening economic reports from the Eurozone. The week will be rounded out with data from the British labor market (Tuesday Sept 10).
EUR/PLN exchange rate was held last week in a sideways trend. There was little economic data and attention was focused on the NBP meeting. Although, according to expectations, it did not bring a change in interest rates, it was significant. The tone of President Adam Glapinski became even more dovish – he signaled that discussion about the reduction of rates may occur after the second quarter of 2025, but does not rule out an earlier date. This reinforces our belief that next year will bring cuts. We consider March or July to be the most likely date for the first reduction, i.e. months of publication of the NBP’s new inflation projections.
The resilience of the Zloty under adverse conditions should be emphasized. However, it now seems to be a pan-European phenomenon, with the euro and CEE region currencies maintaining well overall. This week there will not be readings from Poland that could affect the Zloty, it will therefore mainly react to news from abroad.
There is almost no doubt about the result of ECB’s September meeting (Thursday, Sept 12). A further decrease of 25 bp is fully priced in. Markets will be interested in the bank’s reaction to the recent deterioration of economic data from the Eurozone. The labor market remains a bright spot – the unemployment rate is close to historical lows. German industrial production is very weak and survey-based indicators suggest at best modest growth.
We suspect that the revisions of the ECB’s growth and inflation projections will be just as important for the Euro. They should show how board members assess economic prospects and provide guidance on whether another cut should be expected at the October meeting. We currently do not expect this, but a significant downturn in inflation prospects could change this.
Numerous labor market data publications have not resolved the question of whether the Federal Reserve should decide for rate cuts of 50 bp at the September meeting. The wage demands of workers and the pace of new vacancies growth have significantly dropped, but a low unemployment rate (which has decreased compared to July) and a low number of new unemployment claims suggests that there are few indications of a systematic deterioration in the labor market, which one could expect on the eve of a recession.
The reading of CPI inflation (Wednesday, Sept 11) should show that it has essentially returned to the Fed’s 2 percent target. Currently, in futures contracts, the probability of cutting by 50 bp in September is priced at about 25%, so data would presumably have to significantly mismatch expectations to push the Fed to a larger move. The decision may largely depend on high-frequency labor market data and demand-related data that will appear before the meeting (Sept 18).
A quiet week with few noteworthy publications did not change our evaluation of the prospects for the British economy. Inflation is approaching the Bank of England’s 2% target, economic activity is resilient, and the labor market is good despite the recent cooling off.
With the upcoming bank meeting (Sept 19) in mind, the labor market data to be published this week (Tuesday, Sept 10) and GDP growth in July (Wednesday, Sept 11) should draw attention. Labor market readings in July should support our view that it is still healthy and supportive of consumer demand, especially as wages are growing faster than inflation. Given this, we believe that while BoE rate cuts are closing in, their pace will be rather gradual. This should continue to support GBP, which is on track to remain the best-performing G10 currency this year.
Authors: Enrique DÃaz-Alvarez, Matthew Ryan, Roman Ziruk, Itsaso Apezteguia – Analysts at Ebury
Source: https://managerplus.pl/obawy-inwestorow-po-ochlodzeniu-na-rynku-pracy-w-usa-waluty-safe-haven-zyskuja-42556
