The dollar is in retreat, despite the hawkish Fed

The end of the week is just a few hours away, and the US dollar may end this week very weakly, even despite very good news related to the strength of the American economy and the probably later date of interest rate cuts in the US.

We also had a very good trading session on Wall Street, with great results Amazona, Meta and even Apple, although in the last case the shares were overvalued in after-market quotations, which was related to poor sales results in China.

A clear drop in profitability

The US dollar is very weak at the end of this week, although on Wednesday and Thursday EUR/USD currency pair was the lowest since the first half of December. The weakness of the dollar is the result of a marked drop in profitability. These dropped to 3,87% for 10-year bonds! It is worth mentioning, however, that Powell made it clear during his press conference on Wednesday that an interest rate cut in March was unlikely. Of course, he indicated that the moment of reduction was approaching, but at the same time the Fed itself is ready to keep interest rates high for longer. On the other hand, he also pointed out that if the situation on the labor market deteriorates, the reductions could be faster. It's worth asking whether two weak NFP reports could justify faster cuts? In just a few hours, we will have the first report and many guidelines indicate that the report could theoretically be weaker.

Primarily private the ADP report showed an increase of just over 100. In addition, there has been a recent rebound in unemployment benefit applications, a weaker ISM for employment from the industrial sector and higher planned layoffs according to Challenger. It is also worth mentioning that in November we had a very low number of open jobs according to the JOLTS report, although it improved in December. It can be seen that the report may theoretically perform poorly, although even a reading around 100 does not significantly change the situation on the labor market.

The unemployment rate fell to 3,7% in December, even though the Fed indicated earlier last year that the rate should be around 4%. In the coming years, it expects an average of around 4,1%. One report is, of course, not everything. If today's report is poor, employment change for February would also have to be very bad. Of course, there are some indications that entrepreneurs are laying off more than they are hiring, although at the moment this applies primarily to the technology sector. On a national scale, it is not that important.

The market is anti-dollar

It is also worth mentioning the clear rebound of the ISM index for industry to 49,1 points, despite the truly disastrous readings of regional indices, which indicated a total collapse in January. Of course, the ISM remains below 50 points, but at the same time it suggests this turnaround of the American economy, which, however, did really well last year and grew by 2023% for the whole of 3,1. Good market sentiment also translates into anti-dollar sentiment. Amazon shows very high sales, especially in the US, although it slightly disappoints in terms of the Azure cloud result. The meta shows very strong advertising results, however Apple Lossless Audio CODEC (ALAC), sees a rebound in sales after 4 quarters of decline, although at the same time it shows a clearly lower result than expected in China.

The key data will be released at 14:30 p.m., and at 16 p.m. we will also get the US consumer confidence index and orders for fixed assets. In turn, shortly after 07:00 a.m. we pay PLN 3,9675 for the dollar, PLN 4,3162 for the euro, PLN 5,0581 for the franc, and PLN 4,6274 for the franc.

Source: Michał Stajniak CFA, XTB