The U.S. dollar rallied against its major rivals, spot gold traded at its lowest price in more than four months and European stocks nudged a touch lower on Friday, as investors digested the hawkish tone of the latest Federal Open Market Committee minutes.
The minutes released late on Thursday suggested that an early end to bond purchases may be on the cards.
The decidedly less dovish tone of the minutes boosted the dollar across the board. The currency hit its highest level against the yen since the summer of 2010. The euro was also under the pressure against the greenback, as was the pound, which fell further after the U.K. December services PMI came in weaker than expected.
Spot gold slumped on the combination of stimulus concerns and dollar strength, initially slipping some $20, before extending its decline to fall 1.7% on the day and hit its lowest price since Aug. 22, 2012, at $1,635.44 a troy ounce.
The Fed's easy money policies are considered to be supportive for bullion prices as gold is often sought as a hedge against liquidity-fueled inflation and currency debasement.
Despite the fact that many gold investors have been disappointed in gold's reaction to quantitative easing announcements over the latter half of 2012, any shadow cast over the longevity of the program is still likely to be considered by investors to be a negative for gold prices.
After a three-day break, Japan started its first trading day for 2013 on an upbeat note with its largest daily percentage gain in nearly two years. The Nikkei leapt 2.8% to 10688.11 in response to the compromise made earlier this week in Washington to avoid the fiscal cliff. The deal removed a major overhang, prompting a surge in markets across the region on Wednesday.
Japanese stocks were also helped by weakness in the yen.
Overall, moves in European equity markets were muted, with investors likely wary of making any bold moves ahead of the nonfarm payrolls report—a release that has taken on even greater significance since last night's FOMC minutes.
"If our economists' call for today's employment report to deliver a better-than-expected payrolls figure of 190,000 versus consensus of 150,000 proves correct, focus could be directed towards a QE exit and towards the data thresholds announced by the Fed for policy rates to eventually be raised," said Danske. As a result, the dollar could strengthen further. "Having said that, the positive surprise in the ADP report yesterday suggests that it may take a number above 200,000 to rattle markets," added Danske.
In bond markets, 10-year U.K. gilt yields briefly rose above their French counterparts for the first time since April 2011, despite the U.K.'s higher ratings, ahead of a heavy schedule of bond auctions.
Late morning, U.S. futures pointed to a relatively flat open on Wall Street, where all eyes will be on the payrolls report.
