The event of the day today may be the publication of data from the American labor market. After last month's dismal data, investors are now expecting a very positive publication.
It seems that due to these expectations the US Dollar Index rose to its highest level in three weeks. Positive data from the labor and services markets contributed to expectations that the Federal Reserve will start cutting spending faster.
The ADP report showed that U.S. companies generated the most jobs in 11 months, far exceeding forecasts. The preliminary estimate showed that the number of new claims for unemployment benefits in the US fell above expectations. PMI indicators for services pointed to record growth. Added to this will be today's non-farm payrolls report, giving a clearer picture of the recovery in the US labor market.
U.S. 10-year bond yields rose to 1.63 percent after Wednesday's announcement by the Federal Reserve that it will begin liquidating holdings of corporate bonds it purchased last year under its emergency lending facility. It was launched to calm credit markets at the height of the pandemic. The Fed has indicated that it plans to sell the bonds and ETF holdings in a gradual and orderly manner to minimize the potential for adverse effects on market functioning. The EUR/USD pair fell to 1.2110 this morning, the lowest level since mid-May.
Stronger dollar, weaker gold?
As the USD strengthens, gold seems to be losing ground. The price of gold bullion fell on Friday below USD 1870 per ounce, extending by 2% the previous session's decline and sliding from 5-month highs reached at the beginning of the week. The reason? Better-than-expected economic data strengthened the USD and increased the chance of normalization of the Federal Reserve's monetary policy, which in turn also seems to reduce negative real interest rates, the deepening of which could support gold prices.
Moreover, the peak in US price growth may be reached in the May data, as this is when the base effect will be greatest. Inflation may be lower in the following months, which could also reduce demand for gold.
One tweet shakes cryptocurrency prices again
The cryptocurrency market got nervous again when bitcoin fell more than 6 percent after Elon Musk posted a tweet with a heartbreak emoticon from #Bitcoin. This fueled speculation that perhaps Tesla had after all divested or was about to divest its BTC, which it had previously spent $1.5 billion on.
After bitcoin, the prices of other cryptocurrencies also fell, which after the relative stability of the market seems to have reintroduced a lot of nervousness just before the weekend.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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