Impact of the strengthening dollar and rising government bond yields
The dollar’s recent rally has been attributed to investors anticipating smaller, more gradual interest rate cuts from the Federal Reserve, coupled with concerns about the rising US budget deficit. This has pushed up US Treasury yields, increasing pressure on non-yielding assets such as gold.
Private sector employment soared in October, with ADP reporting a notable increase of 233,000 jobs, well above the previous month’s 159,000 and exceeding market expectations. This rebound signals resilience in the labor market, reinforcing the Fed’s cautious stance on rate cuts. The latest US economic data adds another layer of complexity.
According to the Bureau of Economic Analysis, the U.S. economy grew at an annual rate of 2.8% in the third quarter, slightly lower than the 3% growth in the previous quarter. This moderate growth supports the view that while economic activity remains robust, it may not warrant aggressive rate cuts by the Fed, adding to the dollar’s strength.
Market focus shifts to upcoming US economic data
Investors are also bracing for the release of key economic indicators including the US Personal Consumption Expenditure (PCE) Price Index and the Nonfarm Payrolls (NFP) report on Friday.
These reports are expected to provide more clarity on inflation and employment trends, potentially influencing the Fed’s upcoming policy decisions.
Analysts widely predict a 25 basis point cut at the November Fed meeting, but stronger dollar and Treasury yields continue to limit gold’s upside.