Gold prices rose significantly during trading today, Friday, on track for their best week since early April, following US economic data that boosted bets on a Federal Reserve rate cut.
US Jobless Claims Data Bolsters Gold
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits rose more than expected last week. According to the US Department of Labor data, initial jobless claims increased by 22,000 to 231,000 in the week ending May 4, the highest level since last August, and above expectations for an increase to 212,000 claims from the prior week’s revised average of 210,000.
Gold has regained its allure this week thanks to some soft US data. The initial jobless claims numbers were worse than expected, coming on the heels of the weak nonfarm payroll (NFP) numbers last Friday. Traders are expecting the Federal Reserve to start an easing cycle in September. Lower interest rates reduce the opportunity cost of holding gold.
US Inflation Data Eyed Next Week
Data on the US Producer Price Index (PPI) and Consumer Price Index (CPI) is due out next week.
Fed’s Daly Discusses Inflation Target and Labor Market
Federal Reserve Bank of San Francisco President Mary Daly highlighted the uncertainty surrounding the central bank’s monetary policy path in comments made yesterday evening.
Key Points from Daly’s Remarks:
Data from the past three months has created uncertainty about the direction of inflation in the coming months. Businesses say consumers seem to be making the decision of whether or not to buy, but input prices haven’t come down yet.
There are no signs that the US labor market is moving in a dangerous direction. The US labor market is good, but inflation is too high. The risk surrounding employment and the inflation target is balanced. The Federal Reserve’s monetary policy is currently restrictive, but it will take time to bring down inflation. The Fed’s inflation target is 2%, and the central bank will not change the target level while trying to reach it.
US Dollar Falters on US Jobs Data Hinting at Rate Cuts
The US dollar showed a weaker stance in early Asian trading today, continuing its decline against major currencies like the euro and the sterling. This move comes after recent US labor market data suggests a potential slowdown, increasing the possibility of interest rate cuts by the Federal Reserve this year.
Currency Trading
The dollar weakened against the Japanese yen, trading at 155.39 yen, down from its earlier session high of 155.95. The euro rose to $1.0782 after gaining 0.3%. The dollar index, which measures the dollar against a basket of currencies, was unchanged at 105.25.
The dollar’s decline was driven by the rise in US initial jobless claims. This data, along with last week’s weak payrolls report, has boosted risk appetite in markets, which were uncertain about the timing and extent of the Federal Reserve’s interest rate adjustments.
Major currencies saw gains amid modest gains in US Treasuries and commodities. The yen rose in value, despite falling yields, and the sterling, which had been under pressure following the Bank of England’s cautious policy review.
Sterling rose to $1.2525, recovering from its lowest level since April 24 after the Bank of England hinted at potential rate cuts. The Bank of England kept its benchmark interest rate at 5.25% on Thursday, but a shift in stance by a second Monetary Policy Committee member hinted at upcoming rate cuts.
US Treasury yields fell on Thursday, with the 10-year yield down to 4.46% as the market absorbed $125 billion of new bonds and notes. Traders are now looking to next week’s US Producer Price Index (PPI) and Consumer Price Index (CPI) reports for further clues about inflation trends.
On the other hand, the ongoing trade tensions between China and the United States saw a new development, as the United States added 37 Chinese entities to its trade restrictions list announced on Thursday. These entities are said to act against the national security or foreign policy interests of the United States, complicating supply chain relationships for US suppliers.
Oil Prices Rise Amid Signs of Chinese Economic Recovery
Oil prices rose on Friday, supported by positive economic indicators from China and the ongoing conflict in the Middle East. Brent crude futures rose 37 cents, or 0.4%, to settle at $84.24 a barrel, while West Texas Intermediate (WTI) U.S. crude rose 41 cents, or 0.5%, to settle at $79.64.
This upward movement in oil prices comes after a session in which prices had already reached a one-week high, driven by China’s increased crude oil imports for April and the market’s interpretation of the slowdown in the US labor market as a possible signal of future interest rate cuts.
Data showing a rebound in Chinese exports and imports in April, after a decline the previous month, points to a recovery in demand. ANZ Research commented on this, noting that continued signs of strong demand in China should keep the commodity market well supported.
Meanwhile, tensions in the Middle East escalated, with Israeli forces shelling areas in Rafah on Thursday. Despite international pressure, Israeli Prime Minister Benjamin Netanyahu has dismissed US President Joe Biden’s concerns about a possible arms embargo on Israel if it continues its operations in the southern Gaza City.
A senior Israeli official said late Thursday that the latest round of indirect talks in Cairo aimed at a ceasefire in Gaza had ended without a solution and that Israel would continue its planned operations in Rafah and other parts of the Gaza Strip.
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