The first trading week of July, the third quarter, and the second half of the year, which turned out to be extremely interesting, filled with important publications and economic events, and therefore highly volatile, is coming to an end. Yesterday stands out in this respect, when after the publication on Wednesday evening of the minutes of the June FOMC meeting, a whole block of crucial macro statistics on the U.S. was released at the beginning of the U.S. trading session on Thursday.
According to the report by Automatic Data Processing (ADP), the number of Americans employed in the private sector increased by 497,000 in June, significantly higher than the forecast of an increase by 228,000 and the previous value of 267,000.
Fifteen minutes later, the U.S. Department of Labor presented its weekly report on unemployment benefits claims (for the week ending June 30): the number of initial claims rose from 236,000 to 248,000, while continuing claims fell from 1.733 million to 1.720 million.
Overall, the dollar reacted positively to the publication of the ADP report, which market participants often view as a precursor to the official U.S. labor market report, which will be released today at 12:30 (GMT). The ADP data reinforced investors' belief that the Federal Reserve will proceed with further interest rate hikes, given the tight labor market.
Despite the bullish impulse it received after the publication (at 14:00 GMT) of business activity reports from S&P Global and the Institute for Supply Management (ISM), the dollar generally declined on Thursday.
The revised S&P Global Services PMI index turned out to be better at 54.4 than expected and the preliminary estimate of 54.1, while the ISM Services PMI rose from 50.3 to 53.9 in June (forecast was 51.0).
Strong PMI indices in the U.S. services sector improved investor sentiment after the disappointing ISM report published earlier in the week, which indicated that business activity in the U.S. manufacturing sector continued to contract at an accelerating pace in June: the manufacturing PMI index fell to 46.0 (against a forecast of 47.2 and a previous value of 46.9). Other components of the ISM report showed that in June, the manufacturing employment index fell to 48.1 (from 51.4 in May), and the inflation slowdown index dropped to 41.8 (from 44.2 in May).
However, yesterday's positivity from strong macro data from the U.S. was not enough for the dollar to significantly change the situation in its favor. Yesterday, the dollar index (DXY) rose to a 15-day high of 103.27, but then declined and is currently falling again, reaching 102.75 as of writing, awaiting the release today (at 12:30 GMT) of the U.S. Department of Labor's report with data for June: forecasts suggest that 225,000 new non-farm payroll jobs were created in the U.S. economy (vs. 339,000 new jobs in the previous month), and the unemployment rate decreased by 0.1% to 3.6%.
A strong U.S. labor market report should have a positive impact on the dollar. However, if it disappoints market participants, we can expect a new wave of dollar sell-off.
The weak business activity data in the manufacturing sector published last Tuesday once again reminded of the negative impact of the Federal Reserve's tight monetary policy on the economy.
If today's official data from the U.S. Department of Labor also turn out to be weak, the likelihood of a pause in the Fed's monetary policy tightening cycle will again increase.
Investors may once again turn their attention to gold as a popular safe-haven asset in times of uncertainty and high inflation.
As is known, gold prices are highly sensitive to changes in the monetary policies of the world's largest central banks, primarily the Federal Reserve.
Fresh inflation data for the U.S. will be released next Wednesday. Previously published reports from the U.S. Bureau of Labor Statistics indicated a continued slowdown in inflation. The May report confirmed this once again: in May, the year-on-year CPI figure decreased from 4.9% to 4.0% (forecasts expected an increase of 4.1%). At the same time, the core CPI (which excludes food and energy from the indicator to obtain a more accurate estimate) slowed down to 5.3% from 5.5% the previous month. If the July report also indicates another slowdown in inflation in the U.S., it will leave little doubt that the Federal Reserve will pause again at its July meeting (July 25–26).
In turn, gold will then receive another argument in favor of an increase in its prices, especially since the XAU/USD pair is currently in the zone of key support levels at 1896.00, 1916.00, from which a rebound may occur and a new wave of growth may begin.