Dollar goes in red after US labour market data (Daily analysis 8.02.2021)

8 Feb 2021 9:54|Bartosz Sawicki

Worse than expected data from a key area of the U.S. economy put an end to the dollar's strength which had continued for most of the previous week. The sentiment on risky currencies and asset markets remains good as it raises the prospects for a quick fiscal rescue for the economy.

The EUR/USD pair should try to find a short-term balance around 1.20 mark. The pound sterling remains firm on the global markets, and its strength against the euro is derived from a more efficient vaccination process, and for now, investors should not turn away from the British currency.

Vaccinations once again in the limelight

This week, after the disappointment from the US labour market data (more in the next part of this analysis), the focus will be on the future of the fiscal package prepared by Joe Biden's administration - the need to support the economy will be even more stressed. We did not have to wait long for such comments - they were made by Janet Yellen, Secretary of the Treasury, over the weekend. As a result, the sentiment on equity markets remains positive. Another significant trend is a further increase in U.S. debt yields. One should keep an eye on how it will affect the dollar - so far, it has not supported the U.S. currency, which has declined against the main currencies by over 0.5% since Friday morning.

As usual, reports from the vaccination front will be important. The markets will monitor the course of the program in individual countries and the effectiveness of individual vaccines against the new strains of coronavirus. The data on the efficacy of AstraZeneca, which was supposed to have the advantage of lower logistical requirements and, above all, a low price, are alarming. When it comes to macro data readings, the second week of the month is usually not full of key information. This will also be the case this time. It should be noted that the Polish economy will report a GDP decline in the Q4. Based on the already known data for the whole year, it may be estimated that the economy shrank by nearly 3% year-on-year.

The US. dollar's exchange rate becomes a victim of exaggerated expectations

A series of positive surprises in the U.S. data raised the bar for the key readings from the labour market. The increase in the number of payrolls by less than 50k did not meet the market expectations. Moreover, it should be noted that the Labor Department revised the previous two months' readings downward by a total of nearly 160k jobs. In January, employment was nearly 10 million lower than less than a year earlier, just before the pandemic broke out. We should add that the drop in the unemployment rate from 6.7 to 6.3% is the aftermath of a (negative) decline in the labour pool: only 57.5% of working-age citizens are employed.

The data reveal a picture of a labour market which, after a rapid rebound in May, lost steam in late 2020 under the influence of the second wave of the pandemic and coronavirus restrictions. As of February, its condition should start to gradually improve thanks to the easing of restrictions in other economically important areas, including California, which is leading in terms of population, and New York. In addition, the values of leading economic indexes may be encouraging. Also, the vaccination program is running smoothly, with approximately 12 out of every 100 US citizens already vaccinated.

8 Feb 2021 9:54|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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