US equities and greenback advance ahead of January’s Non-Farm Payrolls

The US stock indices and the US dollar have extended weekly gains driven by the hopes of Biden’s fiscal stimulus, the US labour market recovery, the positive vaccine distribution, and ahead of the US Non-Farm Payrolls report for January.

US Non-Farm Payrolls forecast:

The US Labor Department will release its January’s Non-Farm Payrolls report on Friday afternoon, with market analysts expecting 50,000 payrolls added in January, after a decline of 140,000 in December, while the unemployment rate is expected to stay at 6.7%.

Market Reaction:

All US indices ended Thursday’s session with more than 1% gains on improved risk sentiment, with S&P 500 and Nasdaq indices settling at fresh record highs of 3.871 and 13.777, respectively. The industrial Dow Jones closed at 31.055, just below its all-time high, posting a four-day winning mark.

Gains in major tech and cyclical names pushed S&P 500 and Nasdaq to hit new record highs, as investors bet on faster US economy recovery based on the better-than-expected initial jobless claims in the week ending Jan. 23, which fell to the lowest level since November.

Robust gains in US Dollar and Treasury Yields:

The world’s reserve currency has extended its recent upward movement bouncing off its 2020’s lows boosted by the improved US economic & labour market data, and with hopes for faster vaccine rollout in the country which causes some dollar short squeeze.

As a result, the DXY-US dollar index climbed to a 2-month high of 91.60 on Friday morning, ahead of its best week, sending EUR/USD pair to trade below $1.20 for the first time since Dec.01.

The 10-year Treasury Yield trades near 1.15%., close to its 12-month high., despite the zero interest rates and Federal Reserve’s continued dovish monetary policy, which caps a possible rise in the long-term US yields.

The recent positive economic fundamental data are bullish for the dollar-denominated assets as they indicate the robustness of the US economy relative to other countries after the 2020’s pandemic-led recession.

Weaker Precious Metals over stronger US dollar:

The “safe-havens” Gold and Silver dropped below $1.800/oz and $26.50/oz respectively, extending this week’s declines over the ongoing stock market rally coupled with the stronger US dollar and rising yields. The recent weakness in the inflation-hedged Gold, came despite the prospects of higher inflation and currency devaluation, likely to result from Biden’s $1.9T pandemic-relief stimulus.

The precious metals are priced in US dollars, with their values rise and fall in mirror image with the greenback. The recent bullish movements in the US dollar and Yields, are making Gold and Silver less attractive for other currency holders and increases the opportunity cost of holding the non-interest yielding precious metals.