Gold price remains upbeat ahead of Fed policy and employment data
- Gold price holds on gains ahead of Fed’s monetary policy announcement.
- The Fed is expected to deliver a steady interest rate decision while the future outlook on rates will be the main focus.
- US ADP showed private payrolls at 107K against projections of 145K.
Gold price (XAU/USD) clings to gains as the United States Automatic Data Processing (ADP) has reported a weaker demand for labor that what anticipated by the market participants. US private employers recruited 107K job-seekers in January, which were significantly lower than expectations of 145K and the prior reading of 158K. A slowdown in the labor demand is expected to scale up expectations for early rate-cuts by the Federal Reserve (Fed).
Market volatility is expected to remain escalated as investors await the monetary policy decision by the Fed. The Fed is expected to deliver a steady interest rate decision for the fourth time in a row. Investors will keenly focus on the bank’s guidance – future expectation – for interest rates, and that will probably direct action in the FX domain.
Amid easing price pressures, further quantitative tightening is not expected from the Fed, therefore, market participants will focus on “when and at what pace” the central bank will start reducing interest rates. Investors are anticipating that the Fed will commence the rate-reduction process from May.
Previous Fed meeting guidance was for 75 basis points (bps) of cuts in interest rates in 2024. The market has been focusing on expectations for early cuts, however, comments from individual policymakers have been advising for keeping interest rates elevated at least for the first-half of the year – until they become confident that the underlying inflation rate will return to the Fed’s 2% target in a timely manner.
Daily Digest Market Movers: Gold price holds gains ahead of Fed meeting
- Gold price trades closely to $2,040 as investors await the Federal Reserve’s monetary policy.
- As per the CME Fedwatch tool, traders are confident about the Fed keeping interest rates unchanged in the range of 5.25-5.50% at the meeting.
- This would be the fourth straight time the Fed has left interest rates steady.
- Price pressures in the United States economy are consistently declining, which have been refraining Fed policymakers from hiking interest rates further.
- Fresh commentary from Fed policymakers on the outlook of interest rates is of utmost importance as a steady monetary policy decision is largely expected.
- In the last monetary policy meeting, Fed Chair Jerome Powell as well as the Summary of Economic Projections (SEP), which contains the expectations of all members, guided a reduction in interest rates by 75-basis points (bps) in 2024, which boosted demand for risk-perceived assets significantly.
- Guidance for 75 bps rate cuts also led to expectations for Fed commencing rate-cuts from March but then failed to gather momentum due to resilient US economic data.
- Investors will be interested to see how the Fed will adjust its three rate-cut guidance in coming policy meetings.
- The CME Fedwatch tool indicates that the Fed will probably start the rate-cut campaign from May now (instead of March). Absence of dovish signals for May’s meeting would build pressure on the Gold price and will improve appeal for the US Dollar.
- This week, various US economic indicators are lined-up, which will keep investors busy. The ISM agency will release the Manufacturing PMI on Thursday, which will be followed by official Employment data, which will be released on Friday.
- On the global front, geopolitical tensions continue to provide a cushion to bullion. US President Joe Biden vowed to retaliate for aerial drone attacks on US bases near northeastern Jordan.
Technical Analysis: Gold holds recovery near $2,040
Gold price trades inside Tuesday’s trading range as investors patiently await the Fed policy decision for fresh guidance. The broader trend for Gold price is bullish. The precious metal is forming a Symmetrical Triangle chart pattern on the daily chart. This suggests a probable eventual breakout in the direction of dominant uptrend, although this type of triangle can break in any direction.
Near-term demand is strong as the asset is auctioning above the 20-day Exponential Moving Average (EMA), which trades around $2,030.
Momentum is still weak as the 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.