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The Fed now enters its “blackout period” ahead of the March 17 rate decision, but markets are anything but quiet. Returns on ten-year Treasuries have topped 1.55% and EUR/USD is hovering around its 2021 lows of 1.1950.
On the other hand, the ISM Manufacturing PMI beat estimates and Goldman Sachs, a bank, foresees 250,000 positions gained.
The main upside drivers for yields and the dollar are vaccines and stimulus. On the medical front, America has hit a pace of two million inoculations per day, increasing the bringing forward the timeline for exiting the crisis.
In Congress, Senate Republicans have slowed the process of approving the new version of President Joe Biden’s covid relief package by forcing clerks to read it out loud. However, Democrats have united around a modified version and are set to turn the bill into law sometime next week.
What about the old continent? While German Factory Orders beat estimates with an increase of 1.4% in January, the EU’s vaccination campaign continues at a sluggish pace. Italy’s decision to block the sending of jabs to Australia reflects despair rather than strength.
Gold reversed an Asian session dip to near nine-month lows and was last seen hovering near the top end of its daily trading range, around the $1700 mark.
The NFP report will be looked upon to reinforce the prospects for a relatively stronger US economic recovery. This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the XAU/USD. Conversely, a softer reading is likely to be offset by the optimism over US President Joe Biden’s $1.9 trillion stimulus package.
Given the upbeat US economic outlook, investors have been pricing in an uptick in US inflation. This, along with expectations for a larger government borrowing to fund the stimulus, should continue to underpin the US bond yields, suggesting that the path of least resistance for the XAU/USD remain on the downside. Hence, any attempted recovery move might still be seen as a selling opportunity.
The precious metal prolonged its recent bearish trajectory and witnessed some selling during the early part of the trading action on the last day of the week. Some follow-through uptick in the US Treasury bond yields turned out to be one of the key factors that exerted pressure on the non-yielding yellow metal, though oversold conditions helped limit any further losses.
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