The sentiment in the USA has improved after better than expected data from the labour market. The surprise took place on several levels. The unemployment rate, the number of jobs, and wage growth improved. Contracts for US indices are up after yesterday's strong plunge, and the EUR/USD exchange rate dropped to 1.1800.
The U.S. unemployment rate fell to 8.4% in August 2020 from 10.2% a month earlier and was below market expectations of 9.8%, the fourth consecutive drop after the April high of 14.7%. The number of unemployed dropped by 2.8 million to 13.6 million. Nevertheless, the unemployment rate remains well above the 3.5% we observed in February before the pandemic hit. The official figures may still differ from reality, as many people are classified as employed even though they are absent from work. Dow Jones futures rose by nearly 200 points on Friday after 1.371 million jobs were added to the US economy.
Much now seems to depend on fiscal stimulus for the states and companies from the US government in the coming months. We are still waiting for another relief package for the economy. Moreover, the lower unemployment rate is likely to force Fed decision-makers to reconsider the most pessimistic employment and other economic forecasts. Nevertheless, the data may affect possible forecasts, but not monetary policy.
After data from the US, the US dollar strengthened and the EUR/USD exchange rate fell to 1.1800. In addition, the euro may be affected by the interest rate market prices. Money markets assume that the European Central Bank will reduce the deposit rate by 10 basis points in September 2021. This pricing is taking place for the first time since the end of June and seems to be a consequence of Philip Lane's statement from the ECB, who stated earlier that the euro/dollar rate is important. At that time, the EUR/USD turned back from 1.2000. This also led to an increase in the price of eurozone bonds, as expectations of monetary policy easing before the ECB's decision on interest rates next Thursday increased.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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