Gold (XAU/USD) reached a near four-week high during yesterday's trading session following a weaker-than-expected report on US private employment. Also, the yields on US bonds continued to rise following a report that President-elect Donald Trump was considering implementing emergency measures to impose a new tariff program.
The ADP National Employment Report revealed that US private payroll growth slowed significantly in the previous month, from 146,000 in November 2024 to 122,000 in December. The market is now awaiting the release of the US jobs report on Friday for further insights into the Federal Reserve's future monetary policy direction.
The Fed's meeting minutes indicated that policymakers agreed that inflation will likely continue declining this year. They also acknowledged the rising risk of persistent price pressures, which could be influenced by the potential impact of President Trump's policies. Meanwhile, physical gold exchange-traded funds (ETFs) have seen their first inflow in four years despite a decline in their holdings by 6.8 metric tons, according to the World Gold Council.
XAU/USD was moving primarily in a relatively narrow range of $2,656–$2,662 during Asian and early European trading hours. Today, market participants are waiting for the US Jobless Claims report data, coming out at 1:30 p.m. UTC. A higher-than-expected reading should be taken as bullish for gold, while lower data may trigger bearish momentum in the precious metal.
Euro Dips on Fears of Possible Tariffs Imposed by Trump
The euro (EUR/USD) lost 0.2% against the US dollar (USD) on Wednesday as US bond yields continued rising, following a report that President-elect Donald Trump was considering using emergency measures to allow a new tariff program.
The US Dollar Index (DXY) continued to hover near a multi-month high yesterday, while the US 10-year government bond yield rose to its highest level since April 2024. The rise happened after CNN reported that Trump contemplated declaring a national economic emergency to justify imposing universal tariffs on US allies and adversaries.
"This feeds into this whole theme of a strong US dollar, and even with the disappointing ADP (employment data), the dollar is still firmer on the day", said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Indeed, despite yesterday's ADP employment report being weaker than expected, EUR/USD continued to decline. Eurozone, a major US trading partner, may face additional tariffs from the US Meanwhile, the German bond market saw a sharp sell-off yesterday, with the 10-year Bund yield reaching a more than five-month high amid accelerating eurozone inflation.
Meanwhile, the divergence in monetary policy expectations between the European Central Bank (ECB) and the Federal Reserve (Fed) continues to favour the greenback. Investors currently price in more than a 96% chance of a 25-basis-point rate cut by the ECB on 30 January, but they expect the Fed to provide a similar cut no earlier than June 2025.
Earlier today, EUR/USD was falling during the Asian and early European trading sessions. Most US markets will be closed on 9 January to honour the passing of Former President Jimmy Carter on National Day of Mourning, so the volatility during the American trading session may subside. Furthermore, the formal macroeconomic calendar is relatively light today, so EUR/USD may continue to trade within its narrow 1.02800–1.03700 range.
Canadian Dollar Consolidates Ahead of Employment Reports
The Canadian dollar (USD/CAD) traded within a very narrow range yesterday and finished the day essentially unchanged against the US dollar (USD).
USD/CAD has been rising almost uninterruptedly since the end of September 2024, driven by less dovish monetary policy of the Federal Reserve (Fed) and growing fears about possible economic tensions between the US and Canada. Yesterday, investors grew more worried about the threat of US trade tariffs.
Still, USD/CAD is currently below its multi-year high set on 3 January, when Donald Trump threatened to impose a 25% tariff on imports from Canada. 'Looking at the broader rebound in the USD, tariffs look like the culprit here again as Trump mulls over emergency legislation with regard to implementing tariffs. This has boosted the USD across the board', said George Davis, chief technical strategist at RBC Capital Markets.
Another bearish factor for the loonie has been the performance of crude oil, one of Canada's major exports. Crude oil price has lost some of its recent gains after large builds in US fuel inventories reported last week. As for the monetary policy, the Bank of Canada (BOC) is projected to pursue a more dovish monetary policy than the Fed. Investors expect the Canadian benchmark rate to decline towards 2.75% by June 2025, while the Fed's base rate is projected to remain within the 4–4.25% range over the same period.
Earlier today, USD/CAD was relatively unchanged during the Asian and early European trading sessions. Today, the volatility in all USD pairs is likely to be relatively low as most American markets will be closed for the National Day of Mourning. The market awaits important reports that may provide clues on the prospects of additional interest rate cuts by the Fed and the BOC tomorrow.