NFP Data to Shape Gold, US Dollar, and S&P 500’s Outlook

JULY NONFARM PAYROLLS REPORT

• The U.S. Bureau of Labor Statistics will release the July employment survey on Friday
• The U.S. economy is expected to have added 200,000 jobs last month, following a gain of 209,000 jobs in June.
• The strength of the report relative to market expectations will determine the outlook for gold and the S&P 500

Most Read: Gold Prices Feel the Squeeze as Yields Rocket Ahead of NFP, Key XAU/USD Levels

The U.S. Bureau of Labor Statistics will release its July nonfarm payrolls (NFP) report Friday morning. According to Wall Street surveys, U.S. employers hired 200,000 workers last month after adding 209,000 jobs in June. With this result, the jobless rate is seen holding steady at 3.6%, indicating that the labor market remains extremely tight.

Economists have consistently misjudged the resilience of the economy, leading to repeated underestimation of employment gains throughout the past year. Given this pattern and forecast bias, it is not unreasonable to believe that the NFP figures could again surprise to the upside, particularly since initial jobless claims, an indicator of layoffs, have headed lower of late.

The strength or weakness of the upcoming report relative to consensus estimates will be pivotal for the U.S. dollar, gold, and the S&P 500, significantly shaping their near-term trajectory. Therefore, traders should closely monitor the economic calendar in the coming days to adapt their strategies and make more informed investment/trading decisions.

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FED INTEREST RATE EXPECTATIONS

Source: CME Group

During its latest meeting, the Federal Reserve emphasized its commitment to a data-dependent approach in assessing future decisions and the broader normalization outlook. This flexible guidance has reduced the likelihood of further policy firming in 2023, but any change in economic conditions could lead to a reassessment of the ongoing tightening cycle.

For instance, if job and earnings growth turn out to be significantly stronger than anticipated, interest rate expectations could shift in a more hawkish direction, with traders potentially discounting another quarter-point hike in the fall for fear of higher inflation. This could be bullish for the U.S. dollar, but bearish for gold and the S&P 500. An NFP figure above 300,000 could make this scenario more likely.

In the event of weak employment gains, such as job figures below 150,000, the opposite scenario is likely to play out. A soft NFP report could raise concerns about the state of the economy, weighing on yields and prompting a dovish repricing of the Fed’s tightening campaign. Consequently, the U.S. dollar could retreat, while the S&P 500 and gold prices may see solid gains.

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The image below shows what markets are expecting.

Source: DailyFX Economic Calendar