New payrolls in the US exceed expectations (Afternoon analysis 3.10.2018)

Another set of positive data from the US labour market - the number of payrolls in September turned out to be the highest since February. The dollar appreciates slightly, but investors are already waiting for Friday's official report from the labour market. The zloty is stable, but the stronger dollar may weaken it.

EUR/USD below 1.16

During Wednesday's session, the sentiment calmed down. The rapid decline in the euro has been halted, mainly by media reports that Italy will make concessions to the European Commission and propose lower deficits in the budget for 2020 and 2021. (2.2 and 2.0% respectively, against the previous 2.4%).

During the Asian session, the euro/dollar had already increased significantly - the EUR/USD quotations rose from 1,154 to almost 1,16. However, the movement was completely reversed at 2:00 p.m. The dollar was additionally supported by data from the US labour market. According to ADP, the number of new payrolls in September in the non-farm sector increased by 230k, 43k above expectations and 62k more than a month ago. On Friday the official data of the Department of Labor will be available and it is most likely that there will be a strong reading, although it should be remembered that the correlation between the two publications is not always good due to seasonality, time of conducting surveys, sample size, etc.

Just before 3:00 p.m., the main currency pair's exchange rate was around 1.154, i.e. practically at yesterday's closing level. A strong ADP reading, Amazon's announcement of increasing the minimum wage to 15 USD per hour are positive signals for the dollar. They may translate into a more significant strengthening of the dollar if the good readings from Friday's report of the Department of Labor (especially in terms of salary and employment growth) are confirmed by the ADP.

The mixture of the appreciating dollar and problems in the eurozone are not very good for the zloty. Although the zloty has remained relatively stable today, the euro remained at 4.30 PLN level and the dollar at around 3.72 PLN. If Friday's data from the US labour market also surprises positively, the dollar may quickly approach 3.80 PLN. The drop in value in relation to other basic currencies would be smaller (0.02 -0.04 PLN), but the whole zloty basket would probably deteriorate.

At 4:00 p.m. today, ISM will publish the PMI of the US service sector in September. A reading of around 58 points should support the dollar and a higher one may strengthen it slightly, although a decrease below 1.15 per EUR/USD is most probably possible in the case of a much higher than consensus (=58.1 points) reading. At the same time, a press conference of the Polish Monetary Policy Council will start after the two-day meeting. It will have a rather limited impact on the zloty's quotations. The chances that the Council will change its position on monetary policy in the light of current external events are minimal.

Tomorrow's preview

At 2:30 p.m., the Department of Labor will publish a weekly report on the initial jobless claim in the US. Two weeks ago, the number of claims has fallen to 202k, the lowest level in 49 years. Although it rose to 214k a week later, it is still close to the last lows, similarly to the consensus on tomorrow's data, which is 211k. An hour and a half later, the Census Office will present data on industrial orders in August (the consensus shows an increase of 2.1% per month), which may provide a good indication of industrial production levels.

Positive (better than consensus) data may further strengthen the dollar in the context of a weakened euro and capital movements to the dollar. However, the impact of these publications is most likely limited. The most important issues currently seem to be the budget of Italy and Friday's report on the labour market in the USA - these events will attract the most attention and may cause the biggest changes in the valuation of the main currencies.