Afternoon analysis 04.08.2017

04.08.2017 15:02|Bartosz Grejner

Finally, some positive data from the US economy - employment growth and wages above expectations. However, the initial dollar reaction has been relatively limited, given the importance of the data. The zloty remained stable in the afternoon, but the USD/PLN pair has headed towards 3.60.

Promising information for the dollar

Today, the Bureau of Labor Statistics has published long awaited July's labour market report. In line with expectations, the unemployment rate has dropped to 4.3%, while the the participation rate increased for the second month in a row to 62.9%. Private sector employment increased by 205k while market estimates were 180k and the median of ADP readings increased by 178 k.

Apart from the data on employment change, probably the most important information was the average hourly earnings. They increased by 0.3% to $26.36 compared to the previous month. Compared to the same month last year, there has been an increase of 2.5%, or 65 cents. This has been more than the median market expectations of 2.4%.

In general, the report was one of the few pieces of positive news recently, that could contribute to the dollar's appreciation in the coming days. If consumer inflation data (CPI), which is due to be released in a week, is also better than expected, we could be dealing with a rebound of recent strong declines in the dollar.

Immediately after the publication of the BLS report, the dollar has gained value, although the response was relatively suppressed given the good data. The main currency pair exchange rate, i.e. the EUR/USD pair has fallen from 1.1870 to 1.1825 - and after a while, it rose again to around 1.184. In theory, today's data from the US labour market should lead to further appreciation of the dollar - the rising yields of US Treasury bonds may suggest this.

However, it should be kept in mind, that the dollar's value has also been lower due to local political factors and their exposure in the media. Nevertheless, the dollar may appreciate in the near future and the EUR/USD rate may fall below 1.18 during the evening session, as US investors will be more active.

Zloty still stable

The appreciation of the dollar has also increased its value in relation to the Polish currency after given labour market data. The USD/PLN exchange rate has increased from 3.57 to 3.59. If the US currency continues to rise during the day (which is currently quite likely), the USD/PLN may exceed 3.60.

The zloty quotes have been relatively stable as of 3 p.m. The EUR/PLN pair after yesterday's losses has been just above 4.24. The dollar's appreciation also has not helped the Swiss franc - the CHF/PLN has fallen below 3.68 (just after the report's publication), which was near the lowest exchange rate since mid-January 2015. The pound has also traded near recent lows - the GBP/PLN has dropped below the 4.69 boundary.

Next's week preview

Next week's calendar of scheduled macroeconomic events is relatively limited. Probably, the most important publications that could have a significant impact on the exchange rates of major currencies will appear in the last two days of the week.

On Thursday, the Office for National Statistics (ONS) will report June's data on the industrial output in the British economy. In the previous four months, it had failed market expectations, and in April and May, even the annual decline was noted - by 0.8% and 0.2% respectively. Its major component, i.e. the manufacturing production has also lacked behind in terms of growth in the last few months, although it has not recorded a year-to-year decline in production.

Current market expectations have indicated a decline in June's industrial production of 0.2% YOY, with growth in manufacturing production by 0.7%. Taking into account the recent devaluation of the pound after the Bank of England meeting (only two members voted to raise interest rates, reduced GDP growth forecasts and 2018 wages), this publication may evoke its significant fluctuations, especially if these values ​​diverged significantly from the consensus.

On Friday, the Bureau of Labor Statistics (BLS) will publish July's data on consumer inflation (CPI). In recent months, both the core index and the headline inflation (excluding energy and food prices) have gradually declined, which has caused further pressure on the dollar. This Tuesday, we were acquainted with June's PCE inflation data, which was slightly better than expected (core index: 1.5% vs 1.4% YOY).

Under such circumstances, some market participants may hope for a positive surprise and a reading according to the consensus might eventually disappoint them, which, in turn, may lead to the dollar weakening. The median of market expectations currently points to a rise in the headline inflation rate from 1.6% to 1.7% and to the core index remaining unchanged at 1.7% (on a yearly basis).

 


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