The cooling down of the labor market hits the dollar

Weekly data from the US labor market are important, but they rarely contribute to an increase in market volatility. This time it was different. After the publication, the dollar depreciated a EUR / USD exchange rate definitely took a northerly direction, reaching the level of 1,0780. The market is currently subject to interpretation of all data that may indirectly affect the decision of the Federal Reserve, which will set interest rates again next week.

The unemployed depreciate the dollar

The increase in the number of unemployed in the US "hit" the dollar. Weekly number of benefits increased to 261 thousand. - highest level since October 2021. Layoffs have been steadily increasing over the last few months, and now we can start to see them finally seeping into the initial jobless claims figures. It is important to remember that there is always a period of time between the announcement of a layoff and the actual redundancy, and it is often not possible to claim benefits until all severance pay has been finalized.

The Fed Funds futures curve shows that markets only slightly lowered interest rate expectations. At the moment, the market gives about 25 percent. chances for an upward move at the Tuesday-Wednesday meeting FOMC.

Stabilization in the markets?

Lack of data from the US may bring more stabilization of quotations today. The market still has Tuesday's inflation data from the US ahead of it, which may again affect expectations regarding further course of the Fed's monetary tightening cycle. It is expected decrease in the headline indicator up to 4,1 percent from 4,9 percent (y/y) and base with 5,5 percent. up to 5,3 percent If we get lower numbers than the consensus, then the dollar could lose value again.

The exit of the exchange rate close to 1,08 resulted from the weakness of the USD. Yesterday's information that the euro zone entered technical recession after Q25 GDP revision was overlooked by the market. At this point, investors are firmly convinced that the ECB will raise the cost of money by XNUMX basis points. More important, however, will be Christine Lagarde's message during Thursday's conference.

Source: Łukasz Zembik, OANDA TMS Brokers