- Gold price eyes a recovery after a long sell-off due to soft US ADP Employment Change data.
- Job vacancies by US employers were upbeat in August, portraying strong labor demand.
- Fed’s Mester supports hiking interest rates in November.
Gold price (XAU/USD) didn’t find buying interest despite downbeat United States labor market data. The US Automatic Data Processing (ADP) has reported a sharp decline in the hiring of private payrolls for September. US employers picked 89k fresh talent from the market against expectations of 153k and August’s reading of 177k. This indicates a soft labor demand that will set a neutral undertone for the Federal Reserve’s (Fed) November monetary policy. The broader outlook for the precious metal may improve as Fed policymakers could turn neutral ahead.
The US Dollar corrects to near 106.60 from its 11-month high of 107.20 on softer-than-anticipated Employment Change data. The 10-year US Treasury yields have surrendered some gains and have eased to near 4.81%. Meanwhile, investors will also focus on the US ISM Services PMI, which will deliver guidance on the demand outlook.
Daily Digest Market Movers: Gold price struggles for a recovery
- Gold price aims for a recovery as the US ADP has reported weaker-than-anticipated Employment Change data for September. The hiring process was slower as firms expected demand to decline in domestic and overseas markets.
- On Tuesday, the precious metal also attempted a recovery near $1,820.00 but failed to capitalize on the same due to hawkish interest rate guidance from Federal Reserve policymakers and upbeat JOLTS Job Opening data.
- The US Bureau of Labor Statistics reported fresh job vacancies at 9.61 million against expectations of 8.8 million. Higher job postings by US employers signify healthy labor demand.
- Cleveland Fed Bank President Loretta Mester reiterated hawkish guidance on the interest rate outlook on Tuesday. Mester said that she is open to hiking interest rates further in the November monetary policy meeting if the economy remains resilient the way it has been. She acknowledged that costly long-term Treasury yields could reshape the monetary policy outlook.
- On Monday, Fed Mester said that one more interest rate hike is well-needed this year and that they are required to remain high for a longer period.
- Contrary to Mester, Atlanta Fed Bank President Raphael Bostic said, “There is no urgency for the Fed to raise interest rates further” but that interest rates must remain higher for a longer time before a rate cut.
- About the rate cuts and inflation outlook, Raphael Bostic said that one rate cut could be announced in late 2024 and the core inflation would come down to 2% near the end of 2025.
- The US Dollar selling pressure after refreshing its 11-month high near 107.20 after poor labor market data, which could set a neutral undertone for the interest rate outlook.
- The broader outlook of the US Dollar is positive as the US economy is resilient, unlike other economies that are struggling to cope with the consequences of higher interest rates by central bankers. The 10-year US Treasury yield jumped to a multi-year high at 4.85%.
- US Treasury Secretary Janet Yellen remained optimistic about the US economic outlook, adding that inflation is coming down in the short term and the labor market is extremely strong.
- Meanwhile, investors await the US Institute of Supply Management (ISM) Management (ISM) Services Purchasing Managers Index (PMI) data for September, which will be published at 14:00 GMT. The US ISM is expected to report the Services PMI for September at 53.6, lower than August’s reading of 54.5. The Services PMI data carries a significant impact on the US Dollar Index as it represents the service sector, which accounts for two-thirds of the US economy.
Technical Analysis: Gold price remains sideways near $1,820
Gold price struggles for a direction, trading near $1,820.00 after an intense sell-off as investors shift their focus to the US labor market data for further guidance. The precious metal remains in the bearish territory and more downside is in the pipeline as the 50 and 200-day Exponential Moving Averages (EMAs) are on the verge of a Death Cross. The yellow metal is expected to find a cushion near the crucial support around $1,800.00.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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