Weaker data from Europe and the US (Daily analysis 3.09.2020)

The dollar appreciates after weaker data from Europe, but equally worrying readings about jobless claims and trade may limit the increase in demand for the US currency. The zloty is again weaker: the USD/PLN increases to 3.75 and the EUR/PLN to 4.43.

Signs of deterioration

Thursday's morning trade was marked by a further, shy yet strengthening of the dollar. The main currency pair, i.e. the euro to the dollar, fell below the 1.18 boundary for the first time in a week. The factors that are favourable for the dollar include the slightly better-than-expected macro data from the US, a decrease in the growth of coronavirus infections, a comment by one of the ECB members on the need to limit euro growth. Today, mixed readings from the eurozone have been added to those factors, indicating that the increase in activity that we have observed in recent months is fading.

In the morning, IHS Markit published the final data of PMI indexes measuring business activity in August. While the aggregate index for the entire region showed even higher activity than initially estimated, this effect was largely due to the service sector in the largest European economy - Germany. Other countries did not do so well.

Particularly worrying is the situation in Spain and Italy, economies that were not in the best condition even before the pandemic, and were particularly strongly affected by it. PMI services for Spain fell from 51.9 pts. in July to 47.7 pts., deeper into the recession than expected. A similar situation was observed in the Italian services sector, where activity measured by the PMI index fell from 51.6 pts. to 47.1pts. In both cases, aggregate indexes (industrial and service sectors together) also fell back below 50 points, signaling a decrease in activity.

Spain and Italy were not the only negative points when it comes to PMI data today either. The increase in activity in the French services sector turned out to be slightly lower than initially estimated (51.5 pts. compared to preliminary data at 51.9 pts.). It is still a zone of activity growth in the sector, but this growth is coming to an end quite quickly (in June PMI services in France was 57.3 points). Today's eurozone data may already suggest signs of a slowdown after months of strong activity growth, potentially weakening the strong demand for the single currency we have seen in recent weeks.

A worrying sign before tomorrow's employment data

In the afternoon, weaker-than-expected macro data from the US came in, which may come as a slight surprise, as we have recently observed a clear improvement in most of them. The Labor Department published weekly reports on jobless claims. Although the number of submitted claims dropped from 1 million to 881 thousand and was below expectations at the level of 950 thousand, the Labor Department changed the seasonal adjustment of these data from this report; therefore, the comparison to previous weeks is not very reliable.

Probably an even worse reading from this report was the strong increase in the number of jobless claims from the pandemic's unemployment assistance program, which grew by as much as 2.6 million to 13.6 million. This applies to the week of August 8-15, which may be important as it also includes data collection for the report on the US labour market and may suggest a weaker-than-expected employment growth in August. Will it be so? We will find out tomorrow.

At the same time as the report on claims, the Census Bureau published US trade data for July. Here too, the statistics clearly disappointed expectations. The deficit increased to 63.6 billion USD, the highest in 12 years, while the deficit was expected to be about 58 billion.

As a result of the afternoon's data from the USA, the demand for the dollar faded slightly as well. The EUR/USD quotations moved away again from 1.18 and just before the start of quotations on the New York Stock Exchange they oscillated around 1.183-1.184.

This afternoon, important ISM data on activity in the US service sector in August will be released. This could potentially introduce a little more volatility into the dollar, but the main event of the week remains tomorrow's publication of the labour market report, which could trigger significant changes in currency quotations.

Enthusiasm could have been a little bit suppressed after today's publication of the report on jobless claims. If tomorrow's report has a similar message, it may also mean that the zloty, which today was once again one of the weakest currencies in the group of emerging countries, will not deepen its losses. Today, the USD/PLN quotations reached 3.75, i.e. the upper limit of quotations for three weeks, and the EUR/PLN 4.43 - the highest level for just over a month. The condition of the zloty in the coming days will depend mostly on the dollar. If today's data on claims are some indication, tomorrow's employment readings may not be less positive than the market expects, which will help the zloty.