Additional data from the US, such as weekly unemployment claims, reinforce the view that fears of a recession were exaggerated. The dollar benefits from this, with Friday’s publication of the NFP (nonfarm payrolls) report possibly being the most important macroeconomic data of the month worldwide. Meanwhile, stagnation continues in the domestic złoty market, and investors will turn their attention to the Polish National Bank (RPP) meeting this week, hoping for new signals about the future of interest rates.
Key points:
– The USD gains from strong economic readings from the US.
– GDP was revised upward for the second quarter, with the number of new unemployment claims remaining almost unchanged.
– Inflation in the Eurozone met expectations.
– Another increase of inflation in Poland was noted, however, the dynamics of prices seem to be below the National Bank of Poland’s projections.
– We are waiting for the crucial NFP data for the market.
Across the ocean, inflation continues to fall, with all signs pointing to it having already hit the Federal Reserve’s target (2%). Last week, the US dollar gained against all other G10 currencies, except for the New Zealand dollar, perhaps indicating that its recent sell-off was too strong and that investors’ positioning is currently more balanced. The situation of emerging market currencies is mixed: Asian ones performed very well, while those of Latin America continue to experience sell-offs due to concerns about the policies of the Brazilian and Mexican governments.
Given the compelling evidence of US inflation returning to target, market attention will likely focus again on labor market data. This week will be crucial for this, with the JOLTs report being published on Wednesday (4.09), weekly unemployment claims on Thursday (5.09), and NFP’s report for August on Friday (6.09) – which will most likely be the most crucial macroeconomic report of the month for the market. The extent of interest rate cuts at the upcoming Fed meeting will probably depend on it. In particular, a significant rise in unemployment, which is currently not part of the market’s base scenario, could prompt the Committee to make a 50 bp cut, impacting further weakening of the dollar.
PLN
The złoty’s recent performance is not impressive, but the EUR/PLN exchange rate remains in a sideways trend. The latest data confirmed that inflation in Poland is in line with expectations, with the main measure being 4.3% in August, slightly above July’s value. The current economic environment in Poland and expectations about its changes in the short term clearly indicate that there will be no interest rate cuts in the following months. The question remains, however, if they will happen in 2025, and if so, when exactly.
Uncertain growth strengthening, led by consumption, will probably not significantly influence the schedule of interest rate cuts, especially as the latest data concerning the beginning of the third quarter are rather disappointing. The Federal Reserve’s recent reversal, however, increases chances for a rate cut in the first half of 2025. Signals are not strong, but policy-makers seem to be looking more favorably at cuts. In this regard, fiscal policy, characterized by significant deficits, increases uncertainty regarding the trajectory of inflation and may caution an easing stance in monetary policy. The National Bank of Poland’s session this week might give us more hints in this regard, although it’s probably too early to anticipate definite announcements.
EUR
Rounding effects resulted in the preliminary August inflation reading for the Eurozone meeting expectations. If we delve into the details, though, we can worry. The dynamics of prices in the service sector, usually characterized by greater persistence, has risen slightly to 4.2%. Relatively stubborn inflation and another good unemployment reading, which fell to an all-time low of 6.4%, mean that the European Central Bank will likely make rate cuts at every other meeting. The market is pricing in a much more dovish path, so there is potential for the euro to strengthen further when expectations are failed.
This week’s attention will focus on the NFP labor report from the US on Friday. However, readings for the common block published by that time might affect the EUR/USD rate. PMI (Wednesday 4.09) and GDP (Friday 6.09) revisions and July retail sales (Thursday 5.09) will be particularly important.
USD
Despite concerns about a slowdown in the US, most economic indicators continue to be consistent with stable growth and a good labor market situation, confirming our view that there will be no recession across the ocean in the near future. We are closely monitoring the weekly number of jobless claims, which, relative to the size of the American workforce, is hovering around historical lows. GDP growth for the second quarter was revised upward last week due to higher consumer spending; however, this had little impact on the currency market as these are quite old data.
The crucial test – for the dollar and for the Federal Reserve – will come with the publication of the August NFP report this Friday (6.09). The market is pricing in about a 1/3 chance of a 50 bp cut in interest rates at the next Federal Reserve meeting (18.09). We believe, however, that this is too much and we expect a solid report that confirms our view. Another significant downside surprise could, however, raise expectations of a larger downward movement and almost certainly lead to dollar depreciation.
GBP
The British pound continues to perform well and remains atop the G10 currency rankings for this year. It’s supported by domestic demand resilience, better than expected economic performance, hopes for improved relations with the European Union under the Labour party, and its undoubtedly attractive pricing.
We will not learn many significant readings from the UK this week, but we believe that relatively high British interest rates mean that the path of least resistance for the pound still leads up. The Bank of England is clearly in easing mode, but the British economy’s resilience suggests that it will cut interest rates gradually. The market is pricing in a maximum 25% chance of a cut in September, but this could change if incoming labor market, GDP, and inflation data deviate from expectations.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak – Analysts Ebury
Source: https://managerplus.pl/dolar-zyskuje-w-oczekiwaniu-na-kluczowy-raport-nfp-13515
