Weak ADP Data, Will NFP Make the Fed Intervene?
The price of gold (XAU/USD) moved steadily around $3,340 per ounce on Wednesday (2/7), as the market awaits the release of Nonfarm Payrolls (NFP) employment data from the United States scheduled for this Thursday. Previously, the ADP Employment Change data released on Wednesday showed a negative surprise: the US private sector actually lost 33,000 jobs in June, whereas it was previously estimated to increase by 95,000. This figure adds to concerns that the US labor market is starting to weaken.
If the NFP report on Thursday also shows weakness, for example only adding around 110,000 jobs compared to 139,000 in May, and the unemployment rate rises to 4.3%, then the potential for an interest rate cut by the Federal Reserve could be even greater. This is good news for gold, because lower interest rates make precious metals like gold — which do not provide yields — more attractive than interest-bearing assets.
On the other hand, the market is still digesting political developments in the US, including President Donald Trump's proposed multi-trillion dollar tax bill that has the potential to widen the deficit. This fiscal uncertainty has strengthened the appeal of gold as a hedge. In addition, expectations of the Fed's monetary easing are increasingly dominating market sentiment ahead of the second half of this year.
Fed Chairman Jerome Powell in his statement at the ECB Forum in Sintra emphasized that the direction of interest rate policy will depend heavily on incoming economic data. Powell emphasized that they will evaluate the situation from meeting to meeting, without providing a definite schedule. This statement opens up room for an interest rate cut in September, but only if labor and inflation data truly show a consistent slowdown.
Source: (ayu-newsmaker)
