January 6 financial breakfast: the dollar benefits from strong employment data or force the Fed to continue to raise interest rates, falling inventories boost oil prices

The dollar rose nearly 1 percent on Thursday after U.S. initial jobless claims fell to a three-month low last week, suggesting the labor market remains tight and could force the Federal Reserve to keep raising interest rates, gold prices pared losses and oil prices rose about 1 percent, supported by U.S. data showing a drop in fuel inventories, while economic concerns limited gains.

Commodities close: Brent crude futures settled up 1.1 percent at $78.69 a barrel. U.S. crude futures settled up 1.2 percent at $73.67 per barrel. U.S. gold futures settled at $1,840.60 per ounce, down about 1 percent.

U.S. stocks closed: The S&P 500 index closed down 1.16% at 3808.10 points. The Dow Jones Industrial Average closed down 1.02% at 32,930.08 points. The Nasdaq Composite Index closed down 1.47% at 10,305.24 points.

Friday's Outlook

Precious metals

Gold prices cut losses on Thursday after Fed officials made comments that inflation will fall in 2023, after falling more than 1% earlier, as data showed the U.S. labor market was tighter than expected, boosting expectations that rate hikes will last longer.

Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said the stronger dollar index is putting pressure on gold. He stressed that the Fed will continue its hawkish stance for a longer period of time due to the continued strength of the labor market.

The dollar rose 0.7% while the 10-year U.S. bond yield moved lower. Higher rates tend to put pressure on non-yielding gold because it doesn't pay interest.

Initial jobless claims fell to a three-month low last week, while layoffs fell 43% in December, indicating a tight labor market. Economic forecasts released by the Fed staff at last month's meeting suggest that the anti-inflationary action may last longer than expected.

While several Fed officials reiterated Thursday that they will continue to act to get inflation back to the 2 percent target, however, Federal Reserve Bank of St. Louis President Bullard said 2023 could finally bring some welcome relief on the inflation front.

Traders now await the U.S. Labor Department's non-farm payrolls data on Friday. Spot silver fell 1.7% to $23.32 an ounce, platinum fell 1.5% to $1,062.06 an ounce, while palladium fell 2.8% to $1,738.75 an ounce.

Crude Oil

Oil prices rose about 1 percent Thursday after posting the biggest two-day decline early in the year in three decades. U.S. data showing a decline in fuel inventories provided support, while economic concerns capped gains. The sharp drop in the first two days was driven by concerns about a global recession, especially after short-term signs of economic weakness in the world's two largest oil consumers.