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Market News

The dollar wobbles, gold under pressure ahead of critical NFP 

October 08, 2021
BY Andreas Georgiades

The dollar index continues to hold near multi-month highs against gold and other major currencies amid rising treasury yields. However, Thursday’s positive news regarding the US debt ceiling reignited the risk-on sentiment, causing a dip in the safe-haven greenback. 

With the NFP coming into focus today afternoon and a healthy bout of anxiety across the charts, we take a look at the dollar’s recent performance and its impact on gold and EURUSD as the Fed tapering approaches. 

NFP and the Fed 

The NFP is once again the main event on the agenda, and this one promises even more swings and rapid price action due to how influential the NFP is to the Fed’s monetary policy decision. 

And the Fed is currently in talks for tightening the screws in order to curb rampant inflation i.e., stop printing dollars to buy bonds. A strong NFP, however, could be the catalyst that speeds things along and spurs them to action. That being said, Fed Chair, Jerome Powell did state that even a “knockout” report is unlikely to affect the tapering timeline as most FOMC members consider their goals already met.

The markets – in their forward-thinking wisdom – are expected to have already priced in a Fed taper as early as November and their reaction to any positive surprises could turn out rather muted. 

In any case, the release of the September job data is expected to show a more robust figure compared to last month’s disappointing numbers, which registered only 235,000 new jobs in August. This time around, forecasts are at 500,000 and Wednesday’s ADP employment report also managed to beat estimates with a rise of 568,0000 – smashing a consensus of 428,000.    

Dollar vs. euro and gold 

The euro is currently on a 14-month losing spree against the dollar, and while the renewed risk appetite provided a breather for the former, the dollar index is largely expected to continue its run to the upside and register fresh highs – that is, if the NFP doesn’t disappoint once more. 

EURUSD is now changing hands near 1.15551 and the sentiment is bearish across the board. 

Gold also struggled to pick up any momentum amid all the turmoil, despite its safe-haven status, and when the Fed eventually turns off the money taps and hikes interest rates, gold prices will decline further as investors seek out interest-bearing assets.

XAUUSD has been trading in a range between 1756.895 and 1767.933 this week – a far cry from its 2020 all-time-high of 2,000 USD.

It all boils down to the outcome of the NFP, which is likely to have a significant impact on gold’s price direction in the near term.

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