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- Gold price consolidates as investors await labor market report
Gold price consolidates as investors await labor market report
- Gold price remains directionless as US NFP release to set the undertone for Fed policy.
- Thursday’s United States economic calendar failed to trigger action in the Gold price.
- The market mood turns positive as investors digest Fitch’s downgrade of the US government long-term debt rating.
Gold price (XAU/USD) trades back and forth as investors are sidelined ahead of the United States Nonfarm Payrolls (NFP) report. The precious metal struggles to deliver a decisive move as the labor market report will set a fresh undertone for the Federal Reserve’s (Fed) September monetary policy. Preliminary consensus is in favor of further resilience in the labor market despite aggressive rate-tightening by the central bank and tight credit conditions.
Thursday’s economic calendar failed to trigger action in the Gold price despite the US Services PMI underperforming in July and the labor cost index growing at a slower pace in the April-June quarter. US factory activities are already in a contracting phase, therefore, resilience in the labor market seldom is a holding hand with the US Dollar and a restrictive measure for the Gold price.
Daily Digest Market Movers: Gold price awaits US NFP
- Gold price extends consolidation as investors await US labor market data for further guidance.
- The precious metal failed to find a decisive move despite the US Services PMI delivering an underperformance and the labor cost index softening further on Thursday.
- US Services PMI for July remained lower at 52.7 against expectations of 53.0 and June’s reading of 53.9. Also, new orders at 55.0 remained surprisingly lower than an upwardly revised consensus of 55.6 and the former release of 55.5.
- Crucial support for higher inflation in the US economy continues to be the rising labor cost index, but significantly weak growth in the wage cost index in the April-June quarter eases consumer inflation expectations.
- Q2 Unit Labor Costs grew at a pace of 1.6% vs. investors’ expectations of 2.6% and a Q1 figure of 3.3% as the context of quick job change starts fading.
- Monthly Factory Orders for June turned out surprisingly higher at 2.3% than upwardly revised expectations of 2.2% and May’s print of 0.4%.
- The US economic calendar remains full of crucial events this week, but the show-stopper is the NFP report, which will be published at 12:30 GMT.
- Wednesday’s July ADP Employment Change report set a positive undertone for the crucial NFP report. The ADP reported that the US labor market added fresh 324K new jobs to payrolls in July versus expectations of 189K.
- About NFP expectations, TD Securities expects payrolls to stay strong in July, registering a 260K gain, and also to reflect a reacceleration from June's 209K print. Economists at TD Securities look for the unemployment rate to drop to 3.5%, as job creation in the household survey will print a similar gain to that of the establishment survey.
- Also, Average Hourly Earnings will be of utmost importance. Per estimates, monthly wage data should grow at a pace of 0.3%, slower than the 0.4% recorded for June. Annual data is seen declining to 4.2%.
- Gold price remains directionless as Fed policymakers deliver mixed interest rate guidance. Chicago Fed Bank President Austan Goolsbee favors further policy tightening despite easing inflationary pressures. Atlanta Fed Bank President Raphael Bostic thinks an interest rate hike in September is no longer required.
- Meanwhile, Richmond Federal Reserve President Thomas Barkin said on Thursday that June’s inflation print was a good read. The Fed policymaker refrained from delivering guidance over policy action.
- The US Dollar Index looks lost in the 102.40-102.80 range as the focus shifts to labor market data.
- The market mood turns positive as investors digest Fitch’s downgrade of the US government's long-term debt rating.
- US Secretary of State Blinken: I have not received a response yet from China's Foreign Minister Wang Yi on the invite to Washington. Blinken expects to have an opportunity to meet.
Technical Analysis: Gold price juggles above $1,930
Gold price oscillates in a narrow range above the crucial support of $1,930.00 as investors await US NFP for further guidance. The precious metal is exposed to the further downside amid a breakdown of the Head and Shoulders chart pattern on a smaller time frame. The yellow metal trades below the 20 and 50-day Exponential Moving Averages (EMAs), which portrays a bearish trend.
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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