US Rate Cut Uncertainty: Key Data Release Triggers Gold Drop, Dollar Surge

I. Gold Dives, Dollar Soars: Non-Farm Data "Slaps" Market Expectations

On October 4th, US time, the non-farm employment data for September released by the US Department of Labor was like a bombshell, detonating the global financial market. The number of new non-farm jobs was 254,000, far exceeding the market's expectation of 150,000; the unemployment rate dropped to 4.1%, which was 0.1 percentage points lower than expected. The employment data for the previous two months were also revised upwards, showing a thriving scene.

This sudden "surprise" caught the market off guard. Investors who had expected the Federal Reserve to continue cutting interest rates were left dumbfounded. Gold prices plummeted, with spot gold in London falling nearly 0.9% at one point, and COMEX gold futures plunging more than 1%. In stark contrast, the US dollar index soared, breaking through the 102 mark. The three major US stock indices also opened higher and continued to rise, seemingly celebrating this "unexpected victory."

II. Changes in Interest Rate Cut Expectations: The Federal Reserve's "Dilemma"

Advertisement

After the non-farm data was announced, the market's expectations for a Federal Reserve interest rate cut quickly cooled down. The CME "FedWatch" tool at the Chicago Mercantile Exchange showed that the probability of a 25 basis point rate cut in November soared from 71.5% to 89.4%, while the probability of a 50 basis point cut plummeted from 28.5% to 10.6%.

Previously, the market had widely expected the Federal Reserve to cut interest rates again in November to stimulate economic growth. However, the strong non-farm data posed a dilemma for the Federal Reserve: continuing to cut rates might exacerbate inflation risks; not cutting rates might affect the momentum of economic growth.

Some analysts believe that the Federal Reserve now has greater flexibility, with the option to cut rates by 25 basis points in November or to pause rate cuts. However, other analysts believe that the Federal Reserve will continue to cut rates to alleviate the burden of high borrowing costs on the public.

III. Hopes for an Economic "Soft Landing"? The Federal Reserve's "Ultimate Goal"The non-farm employment report for September undoubtedly added hope for a "soft landing" of the US economy. The decline in the unemployment rate, rapid growth in the labor force, increase in full-time job positions, and reduction in the net number of unemployed positions all indicate that the US economy continues to maintain vitality.

Federal Reserve Chairman Powell had previously stated that the Fed's goal is to support a healthy economy and job market, rather than to rescue a struggling economy or prevent a recession. He emphasized that if the economic performance meets expectations, the Fed will conduct two more 25 basis point rate cuts this year.

However, Powell also pointed out that the US economy and employment situation are essentially healthy, and the Fed is "realigning" key interest rates, rather than rapidly cutting rates as in an emergency situation. He believes that interest rates are moving towards a "somewhat neutral position," which neither stimulates nor suppresses the economy.

The underlying reasons:

The "surprise" behind this non-farm data is due to factors such as the economy's own resilience, statistical errors, and seasonal factors. In addition, the US government's fiscal and trade policies may also have a certain impact on the job market.

The market turmoil caused by this non-farm data once again highlights the importance of economic data to the financial market. Investors need to closely monitor changes in economic data when making investment decisions and adjust their investment strategies in a timely manner. At the same time, they also need to be vigilant about the "pitfalls" behind the data to avoid being confused by short-term fluctuations.