Daily digest market movers: Gold price continues to advance while US Dollar turns sideways
- Gold price trades close to all-time highs near $2,350 while the US Dollar fails to catch bid even though strong United States labor market data for March dents speculation for the Federal Reserve (Fed) to begin reducing interest rates, which are currently expected from June.
- The US Nonfarm Payrolls (NFP) report showed that the labor market recorded an increase of 303K fresh payrolls, significantly better than the 200K expected and the prior reading of 270K. The Unemployment Rate fell to 3.8% from the consensus and the prior reading of 3.9%. Robust labor demand is generally followed by strong wage growth as employers are forced to offer higher pay due to a shortage of workers. Higher wage growth boosts consumer spending, which keeps inflation stubbornly higher.
- The labor market data showed that the Fed does not need to pivot to rate cuts sooner. The CME FedWatch tool shows that traders are pricing in 48% for lowering borrowing costs in June, down significantly from 58% a week ago.
- After the strong US NFP data, Fed Governor Michelle Bowman said, “We are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation,” Reuters reported. Bowman remains confident that inflation will soften ahead with labor demand remaining strong. She added that if that happens, "it will eventually become appropriate to lower the federal funds rate gradually to prevent monetary policy from becoming overly restrictive.”
- Going forward, investors will focus on the US Consumer Price Index (CPI) data for March, which will be published on Wednesday. The inflation data will provide more cues about when the Fed could start reducing its interest rates. Strong price pressures could keep hopes of rate cuts for June off the table while soft figures could prompt speculation for the contrary.
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