Exchange rates keep a downward trajectory, the dollar without respite despite good labour market data, EUR/PLN dips to 4.67 (Daily analysis 5.12.2022)

The third time is the charm. The EUR/USD exchange rate finally broke through the 1.05 ceiling, and as a result, the USD/PLN exchange rate not only settled at 4.50 but also plunged towards 4.40 PLN, its lowest level since the end of the first half of the year. The dollar has depreciated in seven of the past eight weeks. The EUR/PLN exchange rate remains stable but is slowly eroding the November lows at 4.67, which, if forced, would probably open the way for a 0.02-0.03 PLN drop in the euro, i.e. to the summer lows. At the start of the new week, the franc is traded at 4.72 PLN. The pound benefits considerably from the global retreat from the USD: the GBP/PLN is around 5.45.

There were 263,000 new non-farm payrolls in the US, against a forecast of around 200,000. This is close to the result achieved in the previous two months and a result that should be viewed positively in light of the full recovery of the pandemic job losses and the deceleration of the global economy. On the other hand, wages rose more strongly than forecast (0.6% m/m, 5.1% y/y), making a case for continued tightening by the Fed. The very good data did not help the USD to break out of the sell-off spiral permanently.

The sentiment towards the dollar is unambiguously negative. Still, Friday's readings suggest that the market's valuation assuming a Fed rate hike of just over one percentage point in this cycle is too low. However, this week little significant data will be known that could verify such a judgement. Today, the most important entry on the calendar will be the ISM index, a closely followed barometer of sentiment in US services. Its importance is further increased by the poor performance of the corresponding index for industry on Friday, which fuelled fears of a global recession and shut down any attempts to rebound from the dollar's weakness, which in November recorded its worst performance against the euro in 12 years and cannot rebound in December either.

For the zloty, the attention will focus on the December meeting of the Polish Monetary Policy Council. Since the authorities remained indifferent to the inflation records and left rates at 6.75% at the previous two meetings, there can be no question of a twelfth rate hike in the cycle, given the weak data for October and the slowdown in inflation in November. Officially, the cycle is not over, and it will be interesting to see how the NBP president will refer to the prolonged pause, whether he will be willing to admit openly that there will be no more hikes and start to familiarise the market again with the vision of cuts at the end of 2023. The decision should not shake the zloty market, and the proverbial ace up the zloty's sleeve could prove to be potential progress on unlocking funding for the National Recovery Plan.