Solid Economic Data Drives Up U.S. Dollar

The U.S. Dollar Index soared to a two-week high after strong U.S. economic data bolstered expectations for a possible rate hike by the U.S. Federal Reserve later this year. Traders also reacted to reduced concerns over North Korea after the rogue nation launched a missile over Japan earlier in the week.

Daily September U.S. Dollar Index

The index was driven higher by a weaker Euro which fell below 1.1900 on speculation that European Central Bank President Mario Draghi was concerned about the value of the single currency. The dollar also took out key resistance against the Japanese Yen to extend gains from the previous session.

The catalysts behind the move were stronger-than-expected private sector jobs data from ADP and a robust quarterly Preliminary GDP report. In the wake of the solid economic data, futures market traders increased the chances of a Fed rate hike before the end of the year. The CMEGroup’s Fed Watch tool showed the chances of a Fed rate hike in December rose from 34 percent earlier in the week to 41 percent.

Economic Data

A Commerce Department report said on Wednesday that the second estimate of U.S. Gross Domestic Product showed that the economy grew at an annual 3.0 percent pace in the second quarter, the fastest in more than two years. Traders were looking for an increase of 2.7 percent, up from 2.6 percent.

The ADP National Employment Report showed U.S. private-sector employers hired 237,000 workers in August for the biggest monthly increase in five months, driving expectations for a solid U.S. August Non-Farm Payrolls figure.

WTI Crude Oil
Daily October West Texas Intermediate Crude Oil

Crude Oil

With almost a quarter of U.S. refineries shut down due to Hurricane Harvey, crude oil prices retreated again on Wednesday while U.S. gasoline prices rose to $2.00 per gallon for the first time since 2015.

According to industry estimates, at least 4.4 million barrels per day (bpd) of refining capacity was offline, or almost a quarter of total U.S. capacity. Prices continue to decline as U.S. crude inventories continued to increase at a rate of about 1.4 million bpd. At the same time, a gasoline supply squeeze triggered a jump in gasoline prices.

Traders also reacted to reports that it could take several months before all production could be brought back online.

In other news, according to the U.S. Energy Information Administration, U.S. commercial crude oil stocks fell by 5.39 million barrels last week, to 457.77 million barrels the week-ending August 25. The report also showed U.S. gasoline demand jumped to 9.846 million bpd last week as U.S. refining utilization rates rose to 96.6 percent, the highest percentage since August of 2015.

However, it should be noted that the EIA data was collected before Hurricane Harvey hit the Gulf Coast.

Comex Gold
Daily December Comex Gold

Gold

Gold prices fell from an 11-month high earlier in the week to close lower on Wednesday. Solid U.S. economic data drove up U.S. Treasury yields on increased odds for a December rate hike by the Fed. This helped make the U.S. Dollar a more attractive investment and encouraged investors to take profits in the dollar-denominated gold futures contract.

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