US labour market confirms Fed stance (Daily analysis 08.11.2021)

The decline in Covid-19 cases translated into an acceleration in the recovery of the US labour market in October. This is particularly evident from the increase in restaurant workers.

In total, more than half a million jobs were created, and the unemployment rate fell to 4.6%. As if that were not enough, employment growth in the previous two months was revised upwards. The result would have been even better had it not been for the reduction of employment in administration. The latest report reinforces the market's belief that the Federal Reserve is set to raise interest rates next year in addition to finalising the tapering process it just announced.

The dollar has behind it an accelerating economy at the end of the year, energy independence and a central bank willing to normalise policy. All these factors are the Achilles heels of the euro, which is one of the least desirable currencies in the current environment. The EUR/USD exchange rate plunged to new lows immediately after the labour market data but quickly rebounded above 1.1550. This is in line with the assessment that although the dollar has run out of fuel for appreciation, a change in the perception of the common currency's prospects is needed to push quotations higher. And this is not likely to happen in the coming weeks.

Inflation and energy prices will dominate the week

This week, investors will focus on inflation data. These will be published primarily in the United States but also in the Czech Republic and Hungary. Today before midday, the full inflation report of the National Bank of Poland will be released, the content of which is known after last week's meeting of the Monetary Policy Council. On Tuesday, an important barometer of economic activity, the ZEW index, will provide a valuable indication of the growing strength on the Old Continent.

The week will be crowned with the preliminary estimate of the Polish GDP growth generated in Q3. It is expected to decelerate from a record 11.2% y/y to around 5% y/y. This result is consistent with the growth rate achieved throughout the year and is also the most likely forecast for next year. In the coming days, echoes of last week's OPEC+ summit, which refrained from speeding up production increases, will be very important for currency and bond markets, which received a sharp reaction from the White House. The price of crude oil on the London Stock Exchange has been declining for several days but has not pushed past the limit of 80 USD per barrel. Crude prices are now bouncing back towards 84 USD, with the spectre of an energy crisis still looming.