Is this a time of a weak dollar? The specter of recession in the US?

Quite an interesting week is behind us, with records on many markets. These records were supported by a weaker dollar, which was additionally not helped by Friday's labor market data. Is there a period of a weaker dollar ahead of us? could it also help the Polish market?

Increase in the unemployment rate

Good market sentiment usually goes hand in hand with a depreciation of the American currency, because then global capital is more willing to invest in higher-risk markets. However, the beginning of the year was slightly different in this respect. Surprisingly good data from the US economy made the dollar the strongest among major currencies. Now, however, this picture is starting to change.

The latest reports from the US were not so good and Friday's report from the labor market fits into this picture. Supposedly, employment growth was again very solid, but at the same time we had significant downward revisions of previous readings and an increase in the unemployment rate. It is still low, but household surveys suggest that the labor market is no longer as strong as it was before, and usually we see a real deterioration only when a recession actually comes.

Will the Bank of Japan decide to increase interest rates?

The dollar may receive an additional blow from a somewhat unexpected direction, namely from Bank of Japan. This bank maintained negative rates throughout the period of tightening in the US and Europe, as a result of which the USD/JPY rate jumped from around 110 to 150. However, now that the Fed and the ECB are preparing to cut rates The Bank of Japan is starting to consider… increases. This would potentially be quite important due to the scale of stimulation from the Japanese. However, it should be borne in mind that the BoJ has already considered abandoning negative rates several times only to ultimately do nothing about it.

Tomorrow, inflation data from the USA

Tuesday may turn out to be crucial for the dollar, as tomorrow we will know the data about inflation from the USA for February. This is the last such important report before the March Fed meeting. In January, inflation surprised with slightly higher levels, but investors are hopeful it was a one-off situation. Apart from slightly higher fuel prices, most inflation trends are favorable (car prices are falling, rent inflation is ending, food prices are stable), so the market is hoping for a good report that will increase the chance of cutting interest rates already in May. Such data would obviously be unfavorable for the dollar and could trigger its greater depreciation.

At 8:50 on Monday the euro costs PLN 4,30, the dollar costs PLN 3,93, franc PLN 4,49, and pound PLN 5,05.

Source: Dr. Przemysław Kwiecień CFA, XTB