Afternoon analysis 03.04.2015:
Weaker than expected data from the labor market hit the dollar. A slower expansion of the US economy may force the Federal Reserve to postpone interest rate hikes. The zloty exploited the opportunity to extend gains against all its major pairs.
The report on the employment situation in the US has disappointed. The Labor Department said that companies added only 126k of workers – clearly a worse result than expected. The median forecast was 245k – according to Bloomberg.
Moreover, the data from the previous month was revised down to 264k from 295k that was reported earlier. The number from the last two months was cut by 69k.
However, other numbers were better. The unemployment rate stood at 5.5 percent – in line with the forecast and no change from the previous month. Moreover, the report on earnings was above expectations, rising by 0.3 percent on a monthly basis – a better result than the 0.2 percent that was projected. Still, the participation rate declined to 62.7 percent – the lowest level since 1978.
March readings ended the best streak of employment gains in years. The employment increase has been above 200k in the last twelve months until March. The last time a similar streak occurred was in the mid-90s.
Nevertheless, after a very good period of solid results a deceleration is not surprising, but the scale of the slowing is. Although, some deterioration in the labor market could be explained by the severe winter, other reports are also pointing at some economic weakness.
Recent data on the sentiment in industry – especially the ISM index and the figures on orders for durable goods – revealed some deterioration in the sector. Moreover, the readings on consumption – the household spending data and retail sales numbers – were weak too.
Given the recent reports, the Federal Reserve may decide to defer interest rate hikes. As a result, the correction in the EUR/USD is going to be extended. Moreover, the situation supports the risk assets class – including the zloty.
Next week will be important for Greece. On April 9, the country is scheduled to pay 450 million euro to the International Monetary Fund – the very first payment in the forthcoming days.
Recently, some Greek lawmakers stated that the pension and wage payment have larger priority than the obligations to the IMF. However, the situation has altered as the deputy finance minister, Dimitris Mardas, said that the Greek government will fulfill its obligations towards the Washington based institution.
Although a similar statement limits the risk, there is still a lot of uncertainty concerning the future of the country. Currently, Athens is waiting for an approval of the reform program – a condition to be met before disbursement of the remaining funds from the bailout program.
When the Greek standoff finally ends, the EUR/USD rebound may be extended as the deterioration of the US economy weakens the dollar.
A stronger zloty
The sentiment towards risk assets has been improved due to mounting expectations that the Fed will decide to postpone interest rate hikes. This factor supports the zloty.
On Friday, the Polish currency managed to extend this weeks gains. The EUR/PLN dropped to the lowest level since the beginning of 2013 and the dollar and pound are at the lowest level for a month. If the positive sentiment towards the risk assets prevails, the zloty may gain further.
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