Weak US June payrolls cools Fed hike bets, dragging the dollar and lifting gold

The US jobs market came in far softer than expected in June, and the read-through has rippled across currencies and metals. Employers added just 57,000 jobs versus expectations near 110,000, well under May's downwardly revised 129,000 gain, while the unemployment rate edged lower to 4.2%. The drop in the jobless rate flatters a weaker picture underneath: the labour force participation rate fell 0.3 points to 61.5%, and when people stop looking for work they no longer count as unemployed, which mechanically pushes the rate down.

The report reshuffled expectations for the Federal Reserve, which under new Chair Kevin Warsh had been leaning hawkish on the back of sticky inflation. According to CME FedWatch, the chance of one or more rate hikes by September fell to about 50% in the minutes after the release, from roughly 65% the day before. That shift knocked the wind out of the greenback. The dollar retreated from near 13-month highs and was on track for a weekly loss, while it was headed for its largest weekly decline since April.

Lower rate-hike odds reduce the opportunity cost of holding non-yielding assets, and gold was a clear beneficiary. Gold climbed toward $4,200 an ounce on Friday, extending the previous session's gains as weaker jobs data prompted traders to scale back bets on Fed rate hikes. The metal touched its highest level since June 23 and posted a roughly 2% weekly gain after four straight weeks of declines. A softer dollar and easing inflation worries, helped by lower oil prices, added to the tailwind.

Traders should note that conviction on the Fed's next move is not settled. Goldman Sachs Asset Management's Kay Haigh said ongoing labour market stability likely leaves the Fed focused on upcoming inflation data, with a path to stay on hold for the rest of the year, though further upside inflation surprises could push a hike sooner. With US markets closed for the Independence Day holiday, moves late in the week came in thin, subdued conditions, which can exaggerate price swings.