Today's NFP Data May Define the Gold Trend
The gold (XAU) rose by 0.87% on Thursday as the US Dollar Index (DXY) weakened after a softer-than-expected US Jobless Claims report.
Yesterday's Jobless Claims report invigorated the US dollar's bears, causing the DXY to fall by 0.16%. According to the report, the number of unemployment benefit claims rose to 229,000, compared to a forecast of 216,000. Weak labour market data weakened the US dollar and pushed XAU/USD up. If US data continues to show a persistent slowdown in the economy, it could prompt the Federal Reserve (Fed) to cut interest rates soon, especially considering that inflation has slowed to around 3%. Overall, gold is rising on the expectation of a rate cut by the Fed in September.
Gold prices are expected to hit another record high this year despite a decrease in physical demand, consultancy Metals Focus said. For example, the Perth Mint reported that gold sales in May dropped to their lowest level since March. Still, continuing tensions between the US and China, conflicts in Ukraine and the Middle East, and the possibility of imminent rate cuts support the price of gold. The spot gold price remained nearly unchanged at around 2,377, while US gold futures rose by 0.2% to 2,396.
XAU/USD rose during the Asian trading window but experienced a decline in the early hours of the European session. Markets today are waiting for the US nonfarm payroll (NFP) data, which will cause increased volatility and affect the US dollar and all related pairs. The latest US macroeconomic data revealed that inflation is slowing, creating room for potential rate cuts by the Fed as early as September. Thus, today's NFP data will be significant as it may support or disprove investors' dovish stance on the US interest rate path. If the NFP numbers are higher than expected, the US dollar will rise, while gold may return towards 2,360. Otherwise, XAU/USD may rise towards 2,400 on weaker-than-expected figures.
The Euro Rises Despite a Rate Cut by the ECB
The euro (EUR) rose by 0.18% even though the European Central Bank (ECB) cut the interest rate yesterday, as the US Dollar Index (DXY) fell following higher-than-expected US Jobless Claims numbers.
As expected, the ECB reduced its base rate by 25 basis points (bps) yesterday. The main refinancing operations rate dropped to 4.25%, while the deposit facility rate reduced to 3.75%. The ECB also released its latest inflation projections, indicating that the eurozone's annual core inflation is expected to be 2.8% in 2024, 2.2% in 2025, and 2% in 2026. During the press conference, ECB president Christine Lagarde stated that the central bank needs more data to confirm confident disinflation and warned that price trends could be volatile in the coming months. For example, eurozone service inflation rose to 4.1% in May, the highest level in seven months. Additionally, the Gross Domestic Product (GDP) grew by 0.3% after contracting during the last two quarters of 2023.
Data released on Thursday indicated that initial jobless claims increased more than anticipated last week, and labour costs in Q1 were revised downwards. Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote in a client note:
"'We expect the overall message from the nonfarm payroll report to be one of strength, albeit ebbing."
He noted,
"We would not characterise the US labour market as weak or strong; rather, "white hot" would be more accurate." Capurso concluded, "Consequently, market pricing for the FOMC's first rate cut in September may be pushed out, supporting a modest increase in the USD."
EUR/USD continued to rise during the Asian and early European trading sessions. Market participants are now focusing on the upcoming monthly US nonfarm payroll (NFP) report due at 12:30 p.m. UTC to assess the state of the labour market and get more details on a possible US interest rate path. Lower-than-expected figures will impact EUR/USD positively, potentially pushing the exchange rate towards 1.09100. However, the pair may correct downwards if the NFP figures exceed the forecast.
JPY Strengthens on US Dollar Weakness
The Japanese yen (JPY) strengthened by 0.33% on Thursday, while the US dollar weakened following a worse-than-expected US Jobless Claims report.
The US Dollar Index (DXY) weakened as lower-than-expected US employment data fueled hopes for two interest rate cuts by the Federal Reserve (Fed) in 2024. A Reuters poll conducted from 31 May to 5 June indicated that nearly two-thirds of economists now predict a rate cut in September. Additionally, the CME FedWatch tool shows that the probability of a 25-basis-point (bps) rate cut in September has risen to nearly 70%, up from 51% a week earlier.
While addressing parliament on Thursday, Bank of Japan (BOJ) Governor Kazuo Ueda stated that inflation expectations are gradually rising but have yet to reach 2%, according to Reuters. Ueda mentioned:
"We are still scrutinising market developments since the March decision. As we proceed in exiting our massive monetary stimulus, it's appropriate to reduce bond purchases." Additionally, BOJ board member Toyoaki Nakamura noted that, "based on current data, it's appropriate to maintain the current policy for some time".
USD/JPY rose slightly in the Asian trading session, possibly influenced by the Ministry of Finance's report about reduced foreign reserves for May. Foreign exchange reserves dropped significantly from $1,279 billion towards $1,231 billion in May, marking the lowest level since February 2023. Reserves decreased as the government conducted foreign exchange intervention operations to support the national currency. Today, traders should focus on the US nonfarm payroll (NFP) report at 12:30 p.m. UTC. The report usually causes increased volatility in the Forex market. If the report is strong—average hourly earnings rise, unemployment drops, or the number of jobs created is higher than expected—USD/JPY will continue to rise, possibly towards 156.600. However, any indications that the US labour market is weakening may invigorate USD/JPY bears, and the pair may drop towards 155.000.