The awaited report from the labour market strengthened the dollar. The zloty is in better shape at the end of the week, but the growing dollar with a potential announcement of additional duties on imports from China may exert pressure on it even this evening.
EUR/USD below 1.16
Another day and another positive data from the US economy. This time the August report from the labour market surprised positively. According to data from the Department of Labor, the average hourly wage of Americans increased by 2.9% per year. This is 0.2 percentage points above both market expectations and July growth, as well as the fastest growth pace since 2009. Moreover, employment growth also turned out to be better than consensus - 201k new payrolls were created in the non-farm sector - 10k more than the market expected and 38k more than yesterday's estimates by private company ADP.
The dollar reacted with an appreciation. The recently weakened US currency has started to pare losses against most currencies. The EUR/USD quotations fell from about 1.162 to 1.158. It should be remembered, that its value has been influenced mainly by political events in recent years. Still, in mid-August, the quotations of the main currency pair were around the 1.13 level.
Since then, incoming macroeconomic data - very good from the US and weaker from the eurozone - suggest a further strengthening of the dollar. The effect of political factors does not always have to be unambiguous, although in this case, in the long run, both the US and the dollar will lose the least in a potential trade war. Today's data, especially the one on the wage growth pace, strongly suggest that the pace of rate hikes expected by the Federal Reserve should be maintained. This will put the dollar on the upward trend along with the elimination of short-term political factors.
We are still awaiting the US decision on tariffs, which may cause a significant increase in fluctuations on the currency market (the announcement may take place today). Although the zloty's condition today was clearly better, data from the USA does not promise anything good in the long run. It is likely to weaken as the dollar strengthens. The EUR/PLN pair, at 3:00 p.m. was quoted slightly above 4.31 and the chances of the zloty strengthening, also in relation to other currencies, seem to be very limited. The announcement of customs duties on imports of goods from China may spoil global sentiment, particularly towards the currencies of emerging countries, and exert additional pressure on the zloty.
Next week's preview
Thursday is the most interesting day of next week. On this day the decision of two central banks regarding monetary policy will be announced. At 1 p.m. the Bank of England will most likely inform that the main interest rate will remain unchanged (0.75%) as well as the bond asset purchase program. Last month it was unanimously increased by 0.25 percentage points. This unanimity was a slight surprise, although it could be deduced from the statement that Brexit would be the factor that could have the greatest impact on future monetary policy.
The UK and German governments' agreement on a less detailed plan reduces the probability of a "hard" Brexit. In the short term, this may be positive for the pound, although in the longer term, a more detailed trade relationship with the EU is necessary for the future health of the UK economy. The Central Bank's publication should not, therefore, bring more significant changes to the pound, which may to a greater extent result from external factors (e.g. the dollar's condition and market sentiment).
At 1:45 p.m., a similar decision and statement by the European Central Bank (ECB) will be announced. Also in this case, we should not expect any changes or a more detailed time frame for rate hikes. However, Mario Draghi's press conference, the head of the ECB, may be important. The depreciation of emerging countries' currencies, also resulting from a significant deterioration in their economies, may slightly worsen the economic growth of the eurozone. Draghi's mentioning of this problem may slightly weaken the single currency.