US: an increasing number of unemployed and record fall in GDP (Daily analysis 30.07.2020)

The Federal Reserve will not raise interest rates and will use the full range of financial market support tools available. However, the problem is that there is not much the Federal Reserve can do with interest rates on mortgages at historically low levels.

Yesterday's statement of the Federal Reserve and the press conference with its chair Jerome Powell did not surprise investors. The mild tone of Powell's statements resulted, among others, in a drop in the yield of 10-year US Treasury bonds to historically low levels (about 0.540%). Under such conditions, the dollar does not have much ground to strengthen.

Importantly for the dollar, Jerome Powell spoke about slowing down the growth of the US economic recovery in July. It is a consequence of the coronavirus and the re-imposition of restrictions in some US states. The statements of the Federal Reserve Chair confirm July's macroeconomic data. Today more statistics are available, and they are in line with the negative trend.

17 million unemployed, GDP down by 32.9%

The number of submitted initial jobless claims in the USA last week was 1.434 million. This is basically in line with the market's expectations, but it's also another week with a rise. A worrying trend is also shown by the data from the report on the number of people already receiving unemployment insurance. These are indexes from two weeks ago, however, they also showed an increase from 16.2 million to 17 million, i.e. by 800 thousand above than the market expected.

Today, the preliminary readings of the US GDP were also presented. The world's largest economy contracted in the Q2 by a record 32.9% q/q (annualized), compared to a 5% decline in the previous quarter. This is slightly smaller than the consensus of economists (by 34.5%), although, with such large figures, the scope of forecasts was wider.

The dollar protects the zloty

After the session started on the New York Stock Exchange, the EUR/USD exchange rate exceeded 1.18. And although the change compared to yesterday's closing was minimal, the main currency pair has been coming closer to the upper limit since mid-May 2018 (approx. 1.185).

A weak dollar is good news for the zloty. Today, on the broader market, there has been an increased risk aversion (falls on markets, increased demand for treasury bonds), which usually has a negative impact on the Polish currency. Meanwhile, the weak condition of the dollar now acts as a buffer. The USD/PLN exchange rate fluctuated around 3.74 in the afternoon and the EUR/PLN around 4.41.

Slightly greater changes are seen in the case of the pound, which also benefits from the global weakness of the dollar. The British currency is not strong at the moment, but the GBP/USD exchange rate has already reversed practically the entire decline since the second week of March (at one point the rate fell to 1.140) and this afternoon it exceeded 1.306. In relation to the euro, the pound is also increasing and is the strongest since July 21st. The GBP/PLN exchange rate rose above 4.89 today and although 4.90 has not yet been reached, this is the upper limit of the rate since 8 days.