Is a recession in the US getting closer? The Polish zloty holds up amidst global panic

Data from the US labour market has exposed the weakness of the American economy. Total selloff in the markets, red on the stock exchange, falling oil prices. The Polish Złoty stands firmly on its feet based on the main global currency pair remaining above 1.09.

Powerful Movements

The ending of last week saw incredible repercussions in financial markets, all due to the presentation of the devastating US labour market data, which immediately sparked a recession discussion. In July, the number of new jobs outside of agriculture increased by only 114,000, with an expected level of 175,000. The unemployment rate disappointed, rising to 4.3%, the highest since the fall of 2021. Such a poor report, indeed the worst in almost 9 years, sparked a recession debate, the conclusions of which could be summed up as: easing in American monetary policy is necessary. Some analysts have even suggested that a 50 basis points cut is needed immediately, which is evident in EUR/USD rates, where the rate quickly jumped beyond the 1.09 barrier. We recorded even bigger movements in the USD/JPY pair, which is plummeting towards the 140 level. Just today, the rate has fallen an incredible 2.76%, a remarkable movement for the FX market.

The spectre of recession now lives on

The risk of a recession in the US also hits equity markets hard, where we have been recording percentage falls since Friday. It must also be mentioned that the bull market driven by artificial intelligence is questionable. The Nasdaq index lost 2.5% on Friday, and contracts indicate over a -4.5% opening today. Not only are overseas markets suffering, but the German DAX also sees significant losses today of 2.7%. The selloff did not bypass the homeland either, where the WIG20 dives more than 4%. With talk of a possible recession in the US, the decline in demand for commodities is not surprising. Oil prices are down by almost 2% today, and WTI prices are approaching $70 per barrel. Risk off is also striking cryptocurrencies, with Bitcoin sliding down by 12.5% today.

This is not the time for risk

It is clear that emerging markets assets are currently facing a difficult uphill battle, with significant demand for safe currencies like the JPY or CHF. Despite these challenging conditions, the PLN is holding up quite well for now, maintaining its relation to the euro at a level close to 4.30. However, a durable breaching of this level could push the rate to the next resistance area around 4.33. If the selloff doesn’t stop there, the next level will only be around 4.40. Besides the devastating labour market report in the US, it’s also worth mentioning the unfavourable geopolitical news. In Bangladesh, bloody protests were suppressed, resulting in the resigning of the Prime Minister. An escalation of the Israel-Iran conflict looms due to possible retaliation for the killing of important Hamas or Hezbollah members. Such an accumulation of worrying factors is not helping; investors are avoiding risk, which could put strong pressure on the PLN. So far, high EUR/USD levels help the Złoty protect itself from a stronger selloff.

Author: Krzysztof Pawlak, currency analyst at Walutomat.pl