The US labor market report has sent shockwaves through the financial world, pushing yields higher across the board. Notably, the US 10-year Treasury yield climbed 10 basis points on the day to reach 4.76%, marking a significant increase of 110 basis points from the lows of September last year. This heightened financial activity coincides with a risk-off mood, which could bolster the safe-haven XAU/USD pair, potentially limiting further losses. The US Dollar ended last week robustly, buoyed by US data releases that triggered a further rise in USD rates.
In the foreign exchange market, the EUR/USD pair continued its downward trajectory for the fifth consecutive day, trading around 1.0215 during the early European session on Monday. The US Dollar's strength is attributed to upbeat US employment data for December, likely reinforcing the Federal Reserve's stance to maintain interest rates steady in January. Nonfarm payrolls growth exceeded expectations with a robust increase of +256k, surpassing the consensus of +160k, thereby confirming solid job growth following disruptions from hurricanes and strikes in previous readings.
The anticipation of the US Consumer Price Index (CPI) for December, scheduled for release on Wednesday, adds to the week's eventful outlook. This release will coincide with inflation data from Sweden, France, Spain, and the UK. In light of these developments, Chicago Fed's Goolsbee cautioned against overinterpreting single reports, suggesting that if current expectations hold, 'rates would be a fair bit lower' in 12-18 months' time.
The market's reaction has been characterized by a stronger dollar and elevated US interest rates, which have also influenced European rates. As the rest of the week promises further economic revelations, global investors remain attentive to upcoming inflation figures. Meanwhile, Norway experienced a decline in core inflation to 2.7% in December from a previous 3.0%, falling below the consensus expectation of 2.8% and Norges Bank's projections. In contrast, Denmark saw an increase in CPI inflation to 1.9% from 1.6% in December, aligning with anticipations.
The persistent demand for the US Dollar continues to exert pressure on currency pairs amid ongoing risk-off flows driven by hawkish Federal Reserve expectations and uncertainty surrounding former President Trump's policies. Global equities reflected this sentiment, experiencing declines on Friday and registering a downturn for the week as robust economic data propelled yields upward.