Dollar's appreciation was stopped? (Afternoon analysis 5.10.2018)

The unemployment rate in the USA is at its lowest since 1970, but the report from the labour market isn't surprising and will be rather neutral for the dollar. This may be good for the zloty, which in the past few days has been under pressure from the stronger dollar.

EUR/USD close to 1.15 handle

The long-awaited report from the American labour market turned out to be mixed in terms of market expectations. The most important piece of information - the increase in average hourly wages was in line with consensus on an annual basis, with an increase of 2.8%, but the monthly increase for August by 0.1pp to 0.3% was revised downward. The unemployment rate surprised positively, dropping to 3.7%, the lowest level since January 1970, although the reading was expected to be 0.1 percentage point higher.

Data on changes in employment in the non-farm sector were negative aspects of the report. The number of payrolls increased by 134k, 51k below the median of market expectations and 96k below ADP's reading from Wednesday. However, it is difficult to expect this data to have a significant negative impact on the dollar. A smaller number of job increases is most likely a consequence of hurricanes, as well as the relatively small sample on which the US Bureau of Labour Statistics bases its data.

A moment after the publication, an increase in the currency market volatility was observed. The main currency pair, i.e. EUR/USD, continued to oscillate around 1.15. Today's report from the labour market finally changes very little. Wage pressure on inflation has not changed significantly and employment data during the hurricane are likely to be ignored.

Therefore, the weaker dollar should not be expected, it should remain in good condition. Especially as drops in the main market indices in the USA are observed, which increases the demand for the US currency. If we do not observe a significant change in sentiment in the second part of the day, when the US investors are more active, the zloty should also remain stable. Changes in the zloty were limited today - the EUR/PLN pair was between 4.30 and 4.31, and the USD/PLN pair was between 3.73 and 3.75. The mixed effect of the US labour market report should help maintain the current zloty valuation in relation to basic currencies, if sentiment during the US session does not deteriorate significantly in the hours of the evening.

Next week's preview

Thursday may be the most important day of the week. On this day, minutes from the European Central Bank (ECB) will be published. There was nothing surprising in the bank's decision or the press conference of its head, Mario Draghi. However, his later statement, quoted by the media that core inflation had risen sharply, had already triggered a (temporary) increase in the euro. This comment was later toned down by the ECB's chief economist Peter Praet, who said that there was nothing new in the statement. Given the recent weakening of the euro, its quotations may be sensitive to hawkish signals from the ECB's minutes.

At 2:30 p.m., the Bureau of Economic Analysis will publish September's data on consumer inflation (CPI) in the USA. A month ago it failed to meet the market expectations - core inflation fell to 2.2% per year (consensus assumed that it would remain at the level of 2.4%). However, this did not hamper the dollar's appreciation, although there were also other favourable factors, such as weakening of the euro, increased risk aversion, good data from the services sector. The median of market expectations assumes an increase in the core index (excluding energy and food prices) to 2.3% year-on-year. An increase above this level may lead to another wave of dollar strengthening, especially since there is no threat to the pace of interest rate rises and the very good condition of the US economy stimulated by fiscal policy.