Increased employment and falling unemployment, a strong push for the dollar (Afternoon analysis 4.09.2020)

The US Department of Labor published the labour market report for August, the most anticipated data set for investors this week. It was mostly positive and had such an impact on the dollar.

Unemployment rate drops rapidly

The issue of employment raised concerns. An increase of 1.35 million payrolls in the non-farm sector was expected. The report's reading proved to be practically in line with expectations, amounting to 1.37 million. However, a large part of this (238,000) represents temporary employment by government agencies in connection with the US census this year.

If we look only at the private sector, the increase in the number of payrolls was already below the expectations of about 1.3 million, amounting to 1 million. This means a slightly faster decline than expected. In July, employment rose by 1.4 million. Nevertheless, the reading is positive, showing significant employment growth, and the rest of the market-relevant data surprised positively.

The unemployment rate fell to 8.4% in August, although a much more modest reduction was expected - to 9.8% (from 10.2% in July). This was accompanied by an increase in the number of economically active people (from 61.4 to 61.7%). Which, in the current conditions, may be slightly less important, but the increase in the average wage also positively surprised with an annual increase of 4.7%. This indicates maintaining the high pace of last month's growth, while the market consensus pointed to a slight weakening, to 4.5%. On a monthly basis, the average wage rose by 0.4%, with no changes expected.

Important boundaries for the dollar

The conclusion of today's report is that the US labour market is still in a weak state and requires fiscal aid, which is being negotiated in Congress. Another conclusion, however, is that the market is returning to its pre-pandemic condition faster than expected. In theory, for the dollar, this could mean a strengthening. Today, the quotations of the main currency pair, i.e. EUR/USD, fell slightly below the 1.18 boundary after the publication of the report. It also oscillated around this level three hours after publication. In order for the dollar to return to a slightly stronger condition, the EUR/USD exchange rate would probably have to fall below 1.1760, which could open the way for further strengthening of the US currency in the global market.

Although the dollar's quotations have not changed significantly, such changes can be observed on the equity market. The US market indexes have been experiencing strong declines for the next day in a row. Even the Nasdaq technology companies index has been depreciated by 5%. This causes a general increase in risk aversion in the broader market and, despite the lack of significant appreciation of the dollar, clearly depreciates the currencies of emerging countries.

The zloty among the weakest EM

Today, the Romanian leu, Czech koruna, the zloty and the forint stand out from this group, losing just under 1% in relation to the dollar, the euro or the pound. Today's USD/PLN quotations exceeded 3.79 PLN, the EUR/PLN rate was 4.47 PLN, and the GBP/PLN pair was 5.00, rising to the highest level since the second week of June. The future fate of the zloty depends largely on the dollar.

However, we will probably wait for the next changes until next week, when the strong movements on the markets might go down a bit (today, short-term options in the US, which might be responsible for part of the depreciation, expired). This does not change the fact that today the dollar received a strong stimulus to strengthen and make up for losses to the euro, which in turn could potentially mean increases in the USD/PLN exchange rate in the coming weeks.