- US NFP labour report eases expectations of a Fed rate cut, limiting Gold’s strength.
- US Nonfarm Payrolls (NFP) weighs on Gold prices with a better-than-expected report supporting the US Dollar.
- Gold prices remain steady above $3,350 despite a stronger USD.
Gold (XAU/USD) has fallen back into a narrow range of consolidation on Friday, trading around $3,360 after the US Nonfarm Payrolls (NFP) report showed a resilient labour market.
After a week of data suggesting a softening US labour market, the Nonfarm Payrolls (NFP) report for May surprised to the upside. The US economy added 139,000 new jobs, beating analysts’ expectations of a 130,000 increase.
Meanwhile, the Unemployment Rate remained unchanged at 4.2%, offering a mixed but slightly more optimistic view of labor market conditions. The stronger-than-expected headline figure has provided temporary relief for the Dollar, easing concerns that the Federal Reserve (Fed) may need to act quickly with rate cuts. However, underlying softness in other employment metrics earlier in the week continues to warrant caution in the broader policy outlook.
According to the CME FedWatch Tool, the probability of a July rate cut has dropped sharply to 16.5%, down from 33.9% prior to the release. The data has temporarily eased pressure on the Fed to act swiftly, suggesting that policymakers may adopt a more patient stance in the near term.
Trade and tariff developments continue to sway Gold prices
Additionally, the ongoing trade discussions between the US and China are providing an additional headwind for Gold prices as trade talks remain in focus. Following the positive phone call between US President Donald Trump and Chinese President Xi Jinping on Thursday, they agreed to restart high-level economic talks. The agenda includes resolving tariff disputes and improving relations, but there’s skepticism among investors about how much progress will be made. This, coupled with the uncertainty around US-Mexico tariffs, could keep market sentiment cautious, supporting Gold prices.
If trade disputes intensify or fail to find a resolution, it could lead to an economic slowdown, weaker equity markets, and increased demand for safe-haven assets, such as Gold.
Gold daily digest: Trade talks, interest rates, and the economic outlook
- Economic data released from the Eurozone this morning shows that Gross Domestic Product (GDP) exceeded analyst forecasts for the first quarter on both a monthly and annual basis. GDP grew by 0.6% quarter-over-quarter (QoQ), exceeding estimates of 0.4%. Year-over-year (YoY) figures showed a 1.5% rise, also above estimates of 1.2%.
- Eurozone’s Retail Sales rose by 2.3% YoY, above the 1.4% estimate, while the monthly reading was in line with expectations of a 0.1% rise.
- On Thursday, the European Central Bank (ECB) cut its interest rate by 25 basis points (bps), a move that was already priced into the market. ECB President Christine Lagarde suggested that the rate-easing cycle may be nearing its end in the short term.
- According to the CME FedWatch Tool, market participants expect the Fed to leave interest rates unchanged within the current 4.25% to 4.50% range at the June 18 meeting. However, the release of NFPs may impact the prospects of whether the Fed will cut rates in July or September. The current probability of a 25 bps rate cut in July is 33.9% at the time of writing, with a 75% likelihood of interest rates being lower than current levels in September.
- The ADP Employment report, which was released on Wednesday, disappointed to the downside, with the private sector adding 37,000 jobs in May, below analyst expectations of a 115,000 increase.
- Thursday’s Jobless Claims data also provided signs of a slowdown in the strength of the US labour situation, with Initial Claims rising to 247,000 last week, above analyst estimates of a 235,000 rise.
Gold clings to rising channel support
Gold has been trading within a narrow range for the past four days, maintaining a position above the $3,350 level since the XAU/USD recovered above it on Monday.
With a rising channel forming since the May 15 low, the price is currently nearing the lower bound of the pattern, providing imminent support at $3,360. Below that, the $3,350 psychological level remains firm, a break of which could see a move to the 20-day Simple Moving Average (SMA) at $3,297.
Meanwhile, as the Relative Strength Index (RSI) remains above the neutral zone in the daily chart, a reading of 56 suggests that bullish momentum has not entirely faded.
Gold daily chart
For an upside move, the Gold price has a few technical hurdles to clear. The $3,392 resistance level has limited the bullish potential throughout the week, followed by the $3,400 psychological level. If bulls clear this zone and bullish momentum gains traction, a move toward the April all-time high at $3,500 may be possible.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.