Gold Plunges Significantly on Strong NFP Data
Gold (XAU) fell by 3.57% on Friday after stronger-than-expected US jobs data reduced the likelihood of a soon interest rate cut by the Federal Reserve (Fed) this year.
Last Friday, the nonfarm payroll (NFP) report showed that the US economy added 272,000 jobs in May, nearly 100,000 above market expectations. Higher-than-expected numbers demonstrated the labour market's resilience. As a result, the probability of a rate cut by the Fed in September has dropped to around 50% from about 70% prior to the report. China's central bank also contributed to the bearish sentiment by halting gold purchases in May after an 18-month streak of continuous buying. Gold experienced a significant drop, which hadn't been seen since August 2020.
"This is a strong report, and it suggests that there are no signs of any cracks in the labour market," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
"It's a plus for the economy and a plus for corporate earnings, but it's a negative in terms of the prospects of a rate cut, perhaps as early as September," he added.
Following the jobs report, the benchmark 10-year US Treasury yields surged by over 15 basis points towards 4.4335%, marking their largest one-day increase in about two months.
XAU/USD has been moving below 2,300 in the Asian and early European trading sessions. Today's trading session is likely to be relatively quiet as the economic calendar features no major news releases. The key levels for XAU/USD are 2,300 and 2,280.
Euro Drops on Solid US Jobs Report
The euro (EUR) dropped by 0.8% on Friday as the US Dollar Index (DXY) surged following a stronger-than-expected nonfarm payroll (NFP) report.
The DXY, which measures the US dollar's value against six other major currencies, increased by 0.8%, marking its best daily gain since 10 April. US nonfarm payroll numbers increased by 272,000 in May, exceeding the forecasted 185,000. Average hourly earnings rose by 0.4%, up to 4.1% year-over-year. The unemployment rate increased towards 4% from 3.9% in April. By the end of the previous week, the DXY gained 0.2% as strong jobs data countered weaker macroeconomic statistics, decreasing the chances of two 25-basis-point rate cuts by the Fed in 2024.
"The markets and the Fed are heavily influenced by the crucial payrolls report. It's not just the headline figure that matters, but also the higher-than-expected wage numbers," said David Rosenberg, founder and president of Rosenberg Research in Montreal.
The Federal Open Market Committee (FOMC) is expected to keep rates unchanged at its policy meeting this Wednesday. Following the solid jobs data release, the rate futures market has priced in just one 25-basis-point cut this year at the November or December meeting, according to LSEG's rate probability app. The likelihood of a rate cut in September fell to approximately 50.8% after the NFP report, down from around 70% on Thursday. A more hawkish outlook on the US interest rate path exerts downward pressure on EUR/USD.
EUR/USD gapped on Monday and sharply dropped by 0.5% during the Asian trading session after French President Emmanuel Macron called a snap election following his defeat by Marine Le Pen's far-right party in the European Union vote. Investors in Europe start the week amid uncertainty over global interest rates and the region's political landscape. The European Parliament has shifted to the right, with more Eurosceptic nationalist representatives. The euro is now trying to find support and will likely stop near 1.07400–1.07300.
Australian Dollar Falls Towards a 4-Week Low on Strong US Jobs Data
The Australian dollar (AUD) fell below 0.66000, reaching its lowest level in four weeks. The currency dropped as the US dollar (USD) strengthened on robust US jobs data, diminishing the likelihood of two Federal Reserve (Fed) interest rate cuts this year.
The US economy added significantly more jobs than anticipated in May, and annual wage growth picked up the pace, highlighting the labour market's strength. The data reduced the likelihood of the anticipated 25-basis-point rate cut in September, prompting traders to adjust their expectations for the timing and extent of future Fed rate cuts. The probability of a rate decrease in September has now dropped towards approximately 50%, down from around 70% late on Thursday.
Investors turned cautious ahead of the Federal Reserve's monetary policy decision and a US inflation report this Wednesday. Last week, data revealed that Australia's economy grew by 0.1% in Q1, down from 0.3% in the previous quarter, falling below market expectations of 0.2%. However, markets see almost no chance of the Reserve Bank of Australia (RBA) easing its monetary policy this year. RBA Governor Michele Bullock stated last week that they would not hesitate to act if inflation remains persistent. Still, she noted that the risks for rates and inflation are currently balanced. Bullock also acknowledged that the labour market is easing and that the latest GDP data was quite low.
AUD/USD rebounded from 0.65800 during the Asian trading session. Today, the macroeconomic calendar is relatively uneventful, so the pair will likely continue to move downwards. This week, the main events are the US Consumer Price Index (CPI) report at 12:30 p.m. UTC and the US interest rate decision at 6:00 p.m. UTC on Wednesday. These events could significantly impact the Forex market and the AUD/USD exchange rate. The Fed is not expected to change its policy at the meeting, but traders should pay attention to officials' comments and the updated economic projections from policymakers.