Gold Grows on Weak US Labour Market Data
Gold (XAU/USD) gained 0.24% on Wednesday after a report showed private sector hiring fell more than expected last month.
The ADP Employment Change report released on Wednesday revealed that the private sector added 146,000 jobs in November, down from 233,000 in the previous month.
This data weakened the US dollar (USD), with the US Dollar Index (DXY) decreasing towards 106.190.
Furthermore, expectations of lower US interest rates support gold, as the Federal Reserve is expected to cut rates by 25 basis points later this month and continue reducing rates in 2025. On Wednesday, Fed Chair Jerome Powell stated that officials will proceed with caution as they continue to lower rates while highlighting the strength of the US economy.
"Our baseline scenario for 2025 is for gold to initially face pressure from a strengthening US dollar but to be supported by increased physical buying and steady demand from the official sector. After that, we anticipate a renewed boost from investors as the FOMC brings rates down towards 4%", said Marcus Garvey, head of commodities strategy at Macquarie.
In the meantime, the metal market continued to benefit from its safe haven status amidst global geopolitical tensions. Gold gains from political instability in South Korea and France, the ongoing conflict between Russia and Ukraine, and the potential escalating tensions between Israel and Lebanon if the ceasefire with Hezbollah is breached.
XAU/USD was growing during the Asian and early European trading hours. On Thursday, the US Jobless Claims report data will be released at 1:30 p.m. UTC. A higher-than-expected reading will be positive for gold, while strong labour data may trigger a correction in the precious metal.
Euro Holds Ground Despite French Political Uncertainty
The euro (EUR/USD) moved within a narrow range of 1.04720–1.05440 against the US dollar (USD) on Thursday but finished the day essentially unchanged.
As the market expected, the French government collapsed following a no-confidence vote by opposition lawmakers against Prime Minister Michel Barnier. Barnier is now expected to tender his and his government to President Emmanuel Macron.
"At this point, it really becomes a question of how much worse the situation gets from here", said Eugene Epstein, head of trading and structured products at Moneycorp.
Reuters reported that French President Emmanuel Macron aims to install a new prime minister quickly. Still, Barnier's removal deepens the political crisis in the eurozone's second-largest economy and could further weigh down on the euro.
Investors also digested comments from European Central Bank (ECB) President Christine Lagarde in a parliamentary hearing on Wednesday. She said the ECB would continue to lower rates but didn't commit to any pace of easing. Meanwhile, the latest data pained a somewhat mixed picture of the US economy. On the one hand, the labour market appears to be in relatively good shape, with the ADP Nonfarm Payroll report aligning with expectations. On the other hand, the ISM Services Index was much weaker than expected. Nonetheless, the US economy's outlook remains favourable. The Federal Reserve's (Fed) Beige Book report on Wednesday showed that businesses were optimistic that demand would rise in the months ahead.
EUR/USD was rising during the Asian and early European trading sessions. On Thursday, volatility may subside, given that traders may prefer to refrain from entering large positions ahead of tomorrow's nonfarm payroll report. Still, Thursday's US Weekly Jobless Claims report, due at 1:30 p.m. UTC, may trigger notable fluctuations in all US Dollar pairs. Higher-than-expected figures may lift the euro slightly, but the 1.06000 level will likely remain intact. Lower-than-expected results may push EUR/USD below 1.05000 again.
CAD Strengthens on Expectations of a Fed Rate Cut
USD/CAD movements slowed as investors continued to bet on an interest rate cut by the Federal Reserve (Fed) this month.
Jerome Powell, Fed Chairman, stated on Wednesday that the US economy is in a better state than was thought in September when the central bank reduced interest rates. This allows policymakers to be more cautious about future adjustments to the base rate. Still, Powell's comments haven't significantly changed market expectations that the Fed will likely reduce rates at the 18 December meeting, notes Sal Guatieri, a senior economist at BMO Capital Markets.
Meanwhile, Canadian service sector activity grew for the second consecutive month in November, with firms increasing their workforce, according to S&P Global Purchasing Managers' Index (PMI) data. The headline business activity index rose towards 51.2 from 50.4 in October. At the same time, the price of oil, an important Canadian export, decreased by 2% towards $68.54 per barrel as traders awaited a decision from OPEC+. However, investors expect the Bank of Canada to maintain its accommodative monetary policy at the upcoming meeting, with a high chance of another significant reduction of 50 basis points.
The pair was moving sideways during Asian and early European trading hours. Today, the US Jobless Claims report at 1:30 p.m. UTC and Canadian Ivey PMI at 3:00 p.m. UTC will affect USD/CAD. Tomorrow, the Canadian Unemployment Rate will come out at 1:30 p.m. UTC. Higher-than-expected data may push the pair towards new highs, while lower data may trigger a downward correction.