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U.S. Unemployment Claims Dampen Investor Sentiment

ECONOMYU.S. Unemployment Claims Dampen Investor Sentiment

“Second-tier” data such as U.S. unemployment claims played the “lead violin” yesterday, partly due to this week’s relatively sparse macroeconomic calendar. The unexpected data triggered a strong reaction with a weakening of the U.S. dollar, a rise in stock indices, and a decline in U.S. debt yields, increasing expectations for Federal Reserve rate cuts. Yesterday also saw decisions from the BoE and the RPP. The former signaled that a June interest rate cut is possible but not confirmed.

The popular “claims” are considered secondary data but took center stage this time not because the market suddenly remembered them, but because their results deviated from recent values. The figure of 231 thousand was higher than the expected 215 thousand and the previous value (revised up to 209 thousand), marking the worst (highest) result in 9 months. The total number of people receiving this benefit rose to 1.78 million. Following the last NFP report, we thus receive another signal that the job market is cooling, with increasingly clear signs. A single figure doesn’t necessarily mean that there are persistent issues in the U.S. job market. Subsequent publications will be crucial, and yesterday’s reading means investors will be closely watching Thursday’s figures for the next few weeks. The actual economic consequences of restrictive monetary policy in the U.S. have so far taken longer to materialize than anywhere else. Perhaps now, we will increasingly receive negative surprises, and the image of the U.S. economy’s exceptional resilience may start to change. Today, consumer sentiment according to the University of Michigan will be released. However, the market is already awaiting next week’s inflation report, likely the event of the week.

Yesterday, the Bank of England maintained the interest rate at an unchanged level of 5.25%, but moved closer to a rate cut. Two (Ramsden, Dhingra) of the nine Monetary Policy Committee members voted for a rate cut, while the other seven preferred no change. Governor BoE Andrew Bailey stated that a rate change at the next meeting on June 20 is “neither ruled out nor a done deal.” By then, we will have two inflation readings. April is the month when a significant part of the service sector basket is subject to annual price increases, so we might receive a bigger surprise in the form of higher readings. If the data is negative, market expectations for the first easing may again shift mainly to August. The pound initially fell on the decision but later U.S. data reversed the trend, and ultimately the “cable” closed the day higher at around 1.2530, and following today’s positive data from the UK (GDP and industrial production), the pound gained and the “cable” rate rose to 1.2540.

Today at 3:00 PM, a press conference by the president of the NBP is scheduled. Yesterday’s decision to maintain rates surprised no one. The main focus will undoubtedly be on the future prospects of monetary policy in light of lower-than-expected CPI data and reduced uncertainties regarding the scale of energy price increases in the second half of the year. I personally believe that the RPP’s stance will remain strongly restrictive and there will be no suggestions that the cost of money could be reduced this year. The złoty gained throughout yesterday. Acceleration in appreciation occurred after the RPP decision was announced. Drops in EUR/PLN and USD/PLN fit the picture of a rising main currency pair rate. This morning, there is an upward correction in the rates. EUR/PLN is rising above 4.2950 and USD/PLN to 3.9850.

Łukasz Zembik, Oanda TMS Brokers

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