No increases for dollar (Afternoon analysis 09.03.2018)

The long-awaited data from the US labour market surprised. The slower than expected wage growth pace hampered the prospects of dollar appreciation. Zloty quotations stabilised due to the lack of dollar appreciation.

Surprising data from the USA

February's report from the US labour market was probably the most anticipated publication of this week. The most important data failed to meet market expectations, in both ways. Employment in the non-farm sector increased by 313k, although 200k was expected as in the construction sector itself, 61k new payrolls were created.

Wage data was disappointing. The average hourly wage in February increased by 2.6% per year. However, the average hourly wage was expected to increase by 0.2 percentage points faster. On a monthly basis, they increased by 0.1%, while the increase was expected to be 0.2% (one month before it was 0.3%).

Data from the US Department of Labor suggested that the probability of four rate hikes this year (in the US) is being slightly limited. The absence of increased inflationary pressures combined with higher than expected employment growth is a good scenario for the share market. This may improve the general market sentiment, which in turn, may be beneficial for the Polish currency - similarly to the rapid appreciation of the dollar (which would have been the case, if wages had risen by 2.9% or more).

Given this data, the zloty was stable, EUR/PLN still fluctuated around 4.20. The biggest volatility was relatively limited to the USD/PLN pair. However, after the euro was stabilized in relation to the dollar around 1.23, the USD/PLN quotations also returned to yesterday's reference level (slightly more than 3.41 PLN). Therefore, the probability of losses on the zloty seems to be limited today.

Although this is not a base scenario, the growing yield on the US Treasury bonds seems to be a threat for the zloty. If, in the following hours, when US investors are more active, rising levels of the US yields combined with the US stock market losses are observed, this could increase risk aversion and weaken the zloty.

Next week's preview

The most important macroeconomic publication for the next week may be February's consumer inflation report (CPI) in the USA, which will be published on Tuesday. The median of market expectations indicates that both the headline inflation rate and the core inflation rate (excluding energy and food prices) will remain unchanged at 2.1% and 1.8% respectively (on a yearly basis).

Definitely, the core inflation rate is much more crucial, as it can better illustrate the inflation development in the future. Deviations of 0.1 percentage points above expectations may cause significant market fluctuations. In the previous month, data of around 1.9% was received. If inflation reached this level in February, it would be the highest since April last year.

Given the decreased geopolitical tensions, such a result (or above) could significantly strengthen the US currency and lead to capital outflows from emerging countries. In such conditions, the zloty usually depreciates much faster than the Hungarian forint.