Major Forex Pairs React to Weak US Labor Data: EUR/USD, GBP/USD, AUD/USD, USD/JPY and Gold Outlook

The rise in quotations was driven by US labour market data from Automatic Data Processing (ADP), according to which private sector employment declined by 32,000 in November after an increase of 47,000 in the previous month, while analysts had expected a rise of 5,000. The weak statistics may serve as an argument for further monetary easing by the US Federal Reserve. It should also be noted that the full report from the US Department of Labor will be published two weeks later due to a record-long government shutdown.

Another negative factor for the US currency was the services PMI from S&P Global: in November the index fell from 55.0 points to 54.1 points, while the equivalent gauge from the Institute for Supply Management (ISM) rose from 52.4 points to 52.6 points versus a forecast of 52.1 points. By contrast, services activity data in the euro area came in stronger than expected: the index for Germany from S&P Global and Hamburg Commercial Bank (HCOB) strengthened from 52.7 to 53.1 points, in France — from 49.9 to 50.4 points, and for the eurozone as a whole — from 53.1 to 53.6 points.

At the same time, it should be recalled that the manufacturing index remains below 50.0 points and is still showing a downward trend, despite rising public spending in the defence sector and Germany’s large-scale infrastructure projects. Yesterday, investors and forex traders also paid attention to October producer price data in the eurozone: on a yearly basis the producer price index fell by 0.5% after –0.2% a month earlier, while markets had expected –0.4%, and on a monthly basis it adjusted by 0.1% after –0.1%. Today at 12:00 (GMT+2), October retail sales data for the eurozone will be released: forecasts suggest an acceleration in annual dynamics from 1.0% to 1.4% and from –0.1% to 0.1% in monthly terms.

GBP/USD

The pound is trading with a bullish bias against the US dollar in the GBP/USD pair, having posted strong gains the day before that allowed the instrument to renew the local highs from October 28, supported by weak US labour market data. These figures further strengthened market confidence that the US Federal Reserve will announce a 25-basis-point rate cut to 3.75% next week. The ADP report on private sector employment in November showed a sharp decline of 32,000 jobs, while analysts had expected an increase of 5,000, and the previous month’s figure was revised from 42,000 to 47,000. Thus, the sector is starting to cool rapidly, which may require more aggressive action from policymakers than originally planned.

The November labour market report from the US Department of Labor will be published only after the FOMC meeting and therefore will not be able to influence the decision of its participants. In addition, services activity data in November showed a decline in the S&P Global index from 55.0 points to 54.1 points, whereas analysts had expected the gauge to remain unchanged. Meanwhile, the UK services PMI increased from 50.5 points to 51.3 points against neutral forecasts. It should be noted that the Bank of England may also opt for monetary easing at its December 18 meeting. On Tuesday, the regulator’s Financial Policy Committee (FPC) released a financial stability report highlighting risks for the national economy, including geopolitical factors, higher trade tariffs and rising sovereign debt. The Bank of England also expressed concern about the valuations of technology companies focused on artificial intelligence (AI) development.

AUD/USD

The Australian dollar is posting solid gains, extending a confident short-term uptrend: the instrument is testing the 0.6615 mark to the upside, updating the local highs from October 29. The AUD/USD pair is supported by October trade data: exports rose by 3.4% after 7.6% in the previous month, while imports increased from 1.8% to 2.0%.

As a result, the trade surplus widened from 3.71 billion Australian dollars to 4.39 billion Australian dollars. Yesterday, the bullish dynamics in the instrument were additionally supported by GDP data, which further reduced expectations of a near-term rate cut from the Reserve Bank of Australia (RBA). In Q3, the national economy grew by 2.1% year-on-year after 1.8% in the previous period, slightly below the 2.2% forecast, while quarterly growth slowed from 0.6% to 0.4% versus expectations of 0.7%. At the same time, the US dollar came under notable pressure from labour market data: the ADP report for November showed a sharp decline of 32,000 jobs in the private sector, compared with an expected increase of 5,000 and a revised 47,000 in the previous month. In addition, services activity data indicated a drop in the November S&P Global index from 55.0 to 54.1 points. The outcome of the Fed’s December 10 meeting remains in focus: forecasts are almost unanimous that the policy rate will be cut by 25 basis points to 3.75%.

USD/JPY

The US dollar is showing mixed dynamics in the USD/JPY pair, consolidating around 155.20 and the local lows updated last Monday, as investors are reluctant to open new positions ahead of next week’s Fed meeting. At this stage, there is virtually no doubt that the regulator will cut rates by 25 basis points to 3.75%, and this is unlikely to lead to a pronounced depreciation of the dollar.

This scenario is already largely priced in, and investors are now more concerned with whether the December move will mark the start of a new easing cycle. Yesterday, the US released ADP data showing that private sector employment in November declined by 32,000 after an increase of 47,000 in the previous month, while analysts had expected a rise of 5,000. This suggests the sector is cooling, possibly requiring more aggressive action from policymakers. In addition, services activity in November weakened: the S&P Global services index fell from 55.0 to 54.1 points, whereas consensus had called for no change. Meanwhile, Japan’s equivalent index from Jibun Bank edged up from 53.1 to 53.2 points. The Bank of Japan’s next meeting is scheduled for December 19, and markets currently do not rule out a 25-basis-point rate hike.

XAU/USD

The XAU/USD pair is losing ground, developing a hesitant short-term downtrend. Market activity remains subdued as investors prefer to wait for the outcome of the Fed meeting, which will be announced on December 10. The current consensus suggests about a 90% probability of a 25-basis-point rate cut to 3.75%, and Fed Chair Jerome Powell may further soften his stance in light of recent weak macroeconomic data.

In particular, yesterday investors and forex traders focused on the ADP report, which showed a decline of 32,000 private sector jobs in November after a 47,000 increase the previous month, while analysts had forecast a gain of 5,000. Another negative factor was the services PMI from S&P Global, which fell from 55.0 to 54.1 points in November. Today at 15:30 (GMT+2), the weekly report on US jobless claims will be in the spotlight: forecasts suggest that initial claims will rise from 216,000 to 220,000, while continuing claims are expected to remain around 1.96 million. On Friday at 15:30 (GMT+2), data on personal consumption expenditure (PCE) price indices will be published — a key metric the Fed uses to assess underlying inflation dynamics. The core PCE price index is expected to remain unchanged from previous readings at 2.9% year-on-year, while the headline index could accelerate from 2.7% to 2.8%. A stronger-than-expected increase could provide a significant argument for the Fed to keep rates unchanged for longer.