- Treasury yields fell due to indications that the Federal Reserve’s restrictive policy is starting to take effect.
- US jobless claims soared 11% last week, the highest increase in five months.
- According to analysts, the US economy added 205,000 jobs in February, a steep decline from January.
On Thursday, gold prices surged as Treasury yields fell due to indications that the Federal Reserve’s restrictive policy is starting to take effect as intended. Investors were also preparing for Friday’s highly anticipated release of the Labor Department’s February jobs report.
The dollar fell from a nearly three-month high, gold increased, and benchmark US Treasury yields fell. These moves came after economic data softened the impact of Fed Chairman Jerome Powell’s hawkish, two-day congressional testimony.
According to data released on Thursday, scheduled layoffs for February increased fourfold year over year, while US jobless claims soared 11% last week, the highest increase in five months.
The Fed welcomes any indications that the labor market is beginning to loosen up.
Treasury yields dropped after the jobless claims data.
According to Bob Haberkorn, senior market strategist at RJO Futures, Gold has had a hard week because of what (Jerome) Powell stated about raising rates. However, the huge increase in jobless claims together with a weaker dollar has gold trading higher.
Jerome Powell, the Federal Reserve Chair, reiterated his call for higher and possibly faster interest rate increases on Wednesday. He, however, stressed that the debate was still in progress and that a decision would depend on data that would be released before the policy meeting of the US central bank in two weeks.
According to Haberkorn, gold investors speculate that the Fed won’t be able to raise interest rates by half a basis point at the upcoming meeting. This is because we may be beginning to see a crack in the labor figures. He added that a big miss in nonfarm payroll numbers on Friday could send gold higher.
The Labor Department’s February employment report is due out on Friday, and it should provide a clearer sense of whether the labor market is deteriorating. According to analysts, the US economy added 205,000 jobs in February, a steep decline from January, while the unemployment rate remained at 3.4%.
According to CME’s FedWatch tool, financial markets have priced in a 63% possibility of a 50bps increase to the Fed funds target rate this month.