- The US Department of Labor will release the Nonfarm Payroll (NFP) report on Friday, 2 August. Analysts expect 175,000 new jobs to be added in July. The unemployment rate is projected to remain at 4.1%.
- The cooling of the U.S. labor market and the gradual decrease in inflation allow the Federal Reserve (Fed) to begin cutting interest rates in September.
- The U.S. dollar index (DXY) has been trading in a downtrend since the end of June, but after reaching strong support in the 103.65 area, DXY started to recover.
- The upcoming NFP report will generate market waves that may potentially extend or break the nascent bullish trend in DXY.
Fed officials are closely monitoring the labor market. The unemployment rate in the United States continued to rise for the third consecutive month, reaching 4.1% in June. If the NFP report comes out below the analysts' expectations, market participants may begin to speculate on the possibility of more than two rate cuts by the end of the year.
The U.S. Department of Labor will release the Nonfarm Payroll (NFP) report on 2 August at 12:30 p.m. UTC. The last report showed that the U.S. economy added 206,000 new jobs in June, slightly below the downwardly revised number of 218,000 in May but above the 190,000 figure expected by the market.
The data for May was revised significantly lower from the initial figure of 272,000, and the April figure was also revised downward by 57,000 to 108,000. This time, analysts expect 175,000 new jobs to be added in July.
The unemployment rate in the United States continued to rise for the third consecutive month, reaching 4.1% in June, the highest level since November 2021. It is projected to stay at 4.1% in July.
It is obvious that the U.S. labor market has shown signs of cooling in recent months. This fact should give the Federal Reserve (Fed) policymakers more confidence that consumer inflation will soon return to the 2.0% target on a sustainable basis.
Indeed, according to the latest releases, the annual inflation rate in the U.S. fell for a third straight month to 3% in June 2024, the lowest since June 2023, compared to 3.3% in May and below forecasts of 3.1%.
"Inflationary pressure may well persist in July and August, however, this is not necessarily a barrier to the Federal Reserve initiating rate reductions," said Kar Yong Ang, a financial market analyst at Octa. "It's worth remembering that another part of the Federal Reserve's dual mandate is to achieve maximum employment, and a weakening labour market has historically led the central bank to lower interest rates," he added.
At the moment, the market is pricing in a nearly 100% probability of a Fed rate cut in September, according to the CME FedWatch Tool. Overall, the market anticipates two cuts by the U.S. central bank before the end of the year.
If the NFP report comes out below the market expectations and the unemployment rate rises and/or the growth in average earnings slows, the probability of more than two rate cuts from the Fed by the end of the year will increase.
This will undoubtedly put additional bearish pressure on DXY and may pull the gold price higher towards $2,430 per ounce. Conversely, higher-than-expected results will almost certainly strengthen the short-term bullish trend in the Dollar Index, and it may even attempt to break above 104.80, dragging the gold price lower.
In anticipation of the beginning of the U.S. monetary policy easing cycle, the dollar index (DXY) has been trading in a downtrend for the last month and reached the 103.60 support level.
If the price breaks down the 104.10 level, a further decline to the 103.20 level can be expected. Conversely, a break above 104.50 would open the way towards 105.50.