Markets Lifted by Strong U.S. Jobs Data and Geopolitical Tensions (10.07.2024)

The dollar gained on solid U.S. labor data, with the nonfarm payrolls report showing 254,000 new jobs in September, reducing expectations of a major rate cut by the Federal Reserve in November. 

As a result, the EUR/USD pair continued its decline, while the Japanese yen weakened amid cautious remarks from Japanese officials. Gold prices retreated as robust labor figures limited expectations of aggressive Fed rate cuts, though Middle East tensions may offer near-term support. The pound fell after Bank of England Governor Bailey’s comments fueled speculation of a rate cut, and silver rose, benefiting from safe-haven demand and China’s hard efforts.

Dollar Gains on Solid Jobs Report and Middle East Tensions

The dollar index hovered around 102.5 on Monday after gaining half a percent in the previous session, driven by a stronger U.S. jobs report that led markets to dismiss the likelihood of another 50 basis point rate cut from the Federal Reserve in November. On Friday, nonfarm payrolls increased by 254,000 in September, well above the anticipated 140,000, while the unemployment rate dropped to 4.1% from 4.2%. As a result, markets now assign about a 95% probability to a more moderate 25 basis point rate cut in November, with only a 5% chance of no change, according to CME’s FedWatch Tool. Investors are now focusing on the upcoming Fed meeting minutes on Wednesday and the consumer price index report on Thursday for further direction on interest rates. Additionally, the dollar gained from increased safe-haven demand amid rising tensions in the Middle East.

In the EUR/USD pair, the initial resistance will be at 1.1000 followed by 1.1050 and 1.1100 if this level is surpassed. On the downside, the first support is at 1.0950, with subsequent supports at 1.0900 and 1.0850 below that.

Yen Drops Below 149 as Market Eyes Fed and Japanese Policy Signals

The Japanese yen fell below 149 per dollar on Monday before recovering some ground, leading top currency diplomat Atsushi Mimura to issue a renewed warning against speculative trading in the foreign exchange market. The yen faced pressure last week after new Prime Minister Shigeru Ishiba and his economy minister Ryosei Akazawa suggested exercising caution before further interest rate hikes, considering the current economic landscape. The currency's decline was escalated by a vigorous U.S. jobs report on Friday, which reduced market expectations for a 50 basis point rate cut from the Federal Reserve in November. Investors are now awaiting Japanese wage data this week to assess its potential impact on inflation and monetary policy.

In USD/JPY, the first support is at 147.30, with subsequent levels at 145.20 and 144.00 below that. On the upside, the initial resistance is at 149.30, followed by 150.00 and 151.00 if this level is breached.

Gold Retreats Amid Strong US Labor Data, Eyes on Fed Meeting and CPI

Gold prices dipped below $2,650 per ounce on Monday, continuing a retreat from recent record levels. This decline follows reports of a robust U.S. labor market, which diminishes the likelihood of the Federal Reserve pursuing aggressive interest rate cuts. In September, nonfarm payrolls rose by 254,000—far surpassing the anticipated 14,000—while the unemployment rate unexpectedly dropped to 4.1%. This data eases fears of a weakening job market, thereby limiting expectations for significant rate reductions in this cycle. Typically, lower interest rates lessen the opportunity cost associated with holding non-yielding assets like gold. Investors are now looking ahead to the Fed's meeting minutes due Wednesday and the consumer price index report set for Thursday for further insights. Additionally, gold's appeal as a safe-haven asset is bolstered by escalating violence in the Middle East, which may support prices in the near term.

In gold, the first support is at 2630, with subsequent levels at 2600 and 2550 below that. The initial resistance is at 2685, followed by 2700 and 2730 if this level is surpassed.

GBP/USD Weakens After Bailey’s Comments Fuel Rate Cut Speculation

The British pound weakened to $1.31, retreating from the March 2022 highs reached in late September, following comments from Bank of England Governor Andrew Bailey that heightened expectations for another rate cut in November. In an interview with the Guardian, Bailey suggested that the central bank might act more swiftly to lower interest rates if further positive inflation news emerges. As a result, markets are now anticipating a 25 basis point rate cut next month, with a 40% chance of a similar reduction in December. The Bank of England held interest rates steady at 5% in September after a quarter-point cut in August. The pound has also benefited from a general weakness in the dollar, as traders foresee a more aggressive monetary easing from the Federal Reserve compared to other major central banks, including the BoE. In September, the sterling appreciated by 1.9%.

In GBP/USD, the first support is at 1.3085, with subsequent levels at 1.3050 and 1.3000 below that. On the upside, the initial resistance is at 1.3160, followed by 1.3200 and 1.3250 if this level is surpassed.

Silver Rises as Geopolitical Risks and China's Hard Boost Demand

Silver prices trade at $31.80 per ounce on Monday. This increase which the silver experienced last week reflects strong demand for safe-haven assets, fueled by optimistic expectations for silver's industrial applications due to China's hard efforts. Rising tensions in the Middle East further supported safer assets, particularly after Israel vowed to retaliate against Iran's ballistic missile attack, which could include targeting Iran's oil infrastructure. Additionally, silver benefited from announcements of significant fiscal and monetary stimulus measures aimed at bolstering the world's second-largest economy. This uptick aligns with increased support for industrial metals, enhancing the outlook for silver-dependent manufacturing sectors, such as electrification technologies and solar panels. However, gains in bullion were tempered by a robust jobs report in the U.S., which weakened dovish expectations for the Federal Reserve.

In silver, the first support is at 31.60, with subsequent levels at 31.30 and 30.50 below that. On the upside, the initial resistance is at 32.20, followed by 32.50 and 33.00 if this level is surpassed.