US Dollar retreats a touch as traders take profit in the wake of PCE and Durable data dump

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Gold holds gains on stable Fed policy, geopolitical tensions, US NFP eyed – Crypto News

Published

2 years ago

November 2, 2023

Dripp

Gold price clings to gains prompted by steady monetary policy from the Fed.
Weak US private payrolls and factory data have diminished the appeal of the US Dollar.
The release of the US NFP would guide further action on the Gold price.

Gold price (XAU/USD) holds onto recovery prompted by a steady interest rate decision from the Federal Reserve (Fed). The precious metal aims to generate more gains in hopes that the Fed has concluded its rate-tightening campaign. Federal Reserve chairman Jerome Powell said progress was being made with inflation and whilst another rate hike was not out of the question he sounded less committed to the idea. As a consequence the US Dollar (USD) weakened and XAU/USD got a shot in the arm.

The downside in the yellow metal also remains cushioned due to Middle East conflicts and mixed US data. US private payrolls and Manufacturing PMI for October failed to meet expectations. Going forward, the Gold price and the US Dollar would be impacted by the Nonfarm Payrolls (NFP) for October. Investors would keenly watch for wage growth as it will exhibit a consumer spending outlook.

Daily Digest Market Movers: Gold price consolidates ahead of US labor market data

Gold price trades inside Wednesday’s range after a recovery move from $1,972 inspired by a steady interest rate decision from the Federal Reserve.
The Fed kept interest rates unchanged in the range of 5.25-5.50% for the second time in a row.
The Fed kept expectations of further policy-tightening alive as the progress in consumer inflation taming toward 2% has slowed due to the high purchasing power of households.
Fed Chair Jerome Powell acknowledged that the US economy is performing well but warned that businesses and households are facing tighter financial conditions.
The US economy is performing strong on metrics of consumer spending and employment along with easing price pressures.
The Q3 growth rate, released last week, was the strongest in 20 years due to robust retail demand and upbeat wage growth.
While discussing rate cuts, Jerome Powell said that the central bank is not looking to lower interest rates but added that “It’s fair to say the question we’re asking is should we hike more” as officials weigh how they can guide inflation back to the 2% target.
The US Dollar Index (DXY) extended its downside to near 105.80 as Jerome Powell’s commentary expressed that the central bank is less committed to the idea of hiking interest rates. In addition to a steady monetary policy decision, ADP Employment and Manufacturing PMI remained below estimates and weighed heavily on the US Dollar.
The US ADP reported that private employers hired 113K job seekers in October, which were lower than expectations of 150K but significantly higher than September’s reading of 89K.
The ISM reported that the Manufacturing PMI slumped to 46.7 from its highest reading of 49.0 in September while economists forecasted a steady performance. The factory data remains below the 50.0 threshold for the 12th time in a row.
New factory orders dropped significantly to 45.5 against a 49.2 reading from September.
Investors await the US Nonfarm Payrolls (NFP) data, which will be published on Friday. As per the consensus, the labor force is expected to have expanded by 180K in October against the former release of 336K. The Unemployment Rate is seen unchanged at 3.8%.
Apart from the employment numbers, investors will focus on the labor cost data. Monthly Average Hourly Earnings is seen expanding by 0.3% vs. 0.2% growth in September. The annual earnings data rose by 4.0% against 4.2%.
Meanwhile, the US Department of Labor has reported that weekly jobless claims rose significantly for the week ending October 27. Individuals claiming jobless benefits rose to 217K from expectations of 210K and the former release of 212K.
Middle East tensions keep broader appeal for bullion strong as Israeli airstrikes come close to hitting the Al Quds hospital in Gaza in which several displaced civilians are sheltering.
A full-scale ground invasion by the Israeli Defence Forces (IDF) would increase the odds of Iran’s intervention, which would widen Middle East conflicts.

Technical Analysis: Gold price trades back and forth near $1,990

Gold price turns sideways around $1,990 after discovering buying support near $1,970 as investors seek fresh development on Israel-Palestine tensions. The precious metal continues to trade inside the $1,970-2,010 range ahead of the crucial labor market data. The yellow metal aims to recapture the psychological resistance of $2,000 as the broader outlook is bullish due to the upward-sloping 50 and 200-day Exponential Moving Averages (EMAs).

Fed FAQs

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.

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.

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.

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.