Gold (XAU) Rises on Soft US Employment Data
Gold (XAU/USD) rose slightly on Wednesday as the US dollar (USD) dropped following a weaker-than-expected US JOLTs Job Openings report.
JOLTs data showed a significantly larger-than-expected decline in job openings on Wednesday, at levels last seen in 2021. This fuelled expectations of a weakening labour market and heightened speculation for a more substantial 50-basis-point (bps) rate cut by the Federal Reserve (Fed) this month. Combined with the sharp drop in US factory activity revealed by the Purchasing Managers' Report (PMI), concerns have grown over the US economy's ability to withstand high interest rates. Consequently, investors have raised their projections for an overall 125 bps of rate cuts by the end of the year, up from last week's forecast of 100 bps.
San Francisco Fed President Mary Daly emphasised that the regulator must lower interest rates to maintain a healthy labour market, though the extent of the cuts will depend on upcoming economic data. According to Vasu Menon, managing director of investment strategy at OCBC, the likelihood of an economic contraction is significantly lower than last year, as the Fed appears prepared to implement deeper rate cuts if needed to address any emerging risks.
XAU/USD moved sideways during the Asian trading session. Today, the release of the ADP Employment Change report at 12:15 p.m. UTC, the Jobless Claims report at 12:30 p.m. UTC, and the ISM Services PMI data at 2:00 p.m. UTC could influence XAU/USD. These reports might trigger a breakout from the current XAU/USD range of 2,470.00–2,510.00.
"Spot gold looks neutral in a range of $2,473 to $2,511 per ounce, and an escape could suggest a direction", said Reuters analyst Wang Tao.
Euro May Face High Volatility Today Due to Important Reports
EUR/USD rose by 0.36% on Wednesday. The pair broke above the 1.10300–1.10700 range, where it had been oscillating for the past few days. Now, the pair is likely to retest the support level at 1.10700.
Following the release of the July US JOLTS Job Openings, which indicated a further slowdown in labour market conditions, the US dollar (USD) weakened against other currencies. According to the report, the number of available jobs decreased from 7.91 million in June towards 7.67 million in July. Following the report, the market's hopes for a more substantial rate cut of 50 basis points increased.
The situation in EUR is somewhat comparable to that of USD, with both the European Central Bank (ECB) and the Federal Reserve (Fed) planning interest rate reductions in September. If the ECB cuts the base rate in September, it will mark the second interest rate reduction since June, when the ECB initiated the transition to policy easing. Overall, ECB officials anticipate inflation to return to the 2% target by 2025.
Today, many reports may affect EUR/USD movements. The pair may further rise towards 1.11000 and above or retreat to the 1.10300–1.10700 range. Traders need to focus on US Jobless Claims data at 12:30 p.m. UTC and ISM Services Purchasing Managers' Index data at 2:00 p.m. UTC. However, the most significant event of the week will be the release of US nonfarm payroll data on Friday, which will give more insights into the potential size of Fed rate reduction this month. Investors are also awaiting the release of the eurozone Retail Sales report today at 9:00 p.m. UTC.
Softening US Labour Market Drives Japanese Yen Lower
The Japanese yen (USD/JPY) gained 1.21% against the US dollar (USD) on Wednesday after the July US Job Openings report suggested a weakening labour market, increasing the likelihood of larger interest rate cuts by the Federal Reserve (Fed).
A decline in US job openings to more than a 3-year low in July suggests a softening labour market. However, a sharp drop in unfilled vacancies is probably not enough to persuade the Fed to cut interest rates by 50 basis points (bps) this month. Still, traders increased bets that the US central bank will deliver a 50-bps reduction at its next meeting. The probability of this scenario currently stands at 45%, according to the CME FedWatch Tool. Either way, there is no doubt the Fed will ease its monetary policy in the months ahead.
"The US central bank must not keep interest rates too high much longer, or it risks causing too much harm to employment", said Atlanta Fed President Raphael Bostic.
Meanwhile, strong safe-haven demand amid global volatility pushed JPY higher.
"Stock market instability and dropping US yields have made the yen a strong performer", said Marc Chandler, chief market strategist at Bannockburn Global Forex.
At the same time, the yield advantage that the USD has enjoyed over the Japanese yen is set to diminish, given that the US inflation and the labour market have cooled. Fundamentally, this development signals a long-term bearish trend for USD/JPY. Also, the Bank of Japan (BOJ) is expected to pursue a tighter monetary policy, with traders currently pricing in a 10-bps rate hike by February 2025.
USD/JPY was falling during the Asian and early European trading sessions. Today, another big influx of US data may shake the global markets. Traders should closely watch three events: the ADP Employment report at 12:15 p.m. UTC, US Jobless Claims at 12:30 p.m. UTC, and the ISM Service Purchasing Managers' Index at 2:00 p.m. UTC. Stronger-than-expected figures may temporarily pause the bearish trend in USD/JPY but are unlikely to reverse it. Conversely, weaker-than-expected results will likely extend the pair's decline towards 142.300.