Dollar Gains on Political Uncertainty, Strong Domestic Data

US Dollar

The U.S. Dollar posted solid gains on Monday, driven by political uncertainty in Europe and stronger-than-expected domestic data.

December U.S. Dollar Index futures settled at 93.405, up 0.522 or +0.56%.

U.S. Dollar Index
Daily December U.S. Dollar Index

The Greenback was boosted early in the session after violence in Catalonia fueled anxiety over political risk in the Euro Zone. This weighed on the Euro.

The dollar was also underpinned by data showing that U.S. factory activity surged to a more than 13-year high in September amid strong gains new orders and raw materials.

Traders also cited the Trump Administration’s proposed tax code changes and higher expectations of a third rate hike by the Fed as contributing factors to Monday’s rally. U.S. Treasury yields also rose above last month’s levels, making the U.S. Dollar a more attractive investment.

U.S. Economic News

The ISM Manufacturing PMI rose in September, expanding at its fastest pace since May 2004. The report showed an increase from 58.8 in August to 60.8 in September. Analysts were looking for an increase of 57.9.

Traders said disruptions to the supply chains caused by Hurricanes Harvey and Irma resulted in factories taking longer to deliver goods and boosted raw material prices. ISM Manufacturing Prices rose to 71.5, up from 62.0. Analysts were looking for a reading of 64.5.

The Commerce Department said construction spending rose 0.5 percent to $1.21 trillion. July’s construction outlays were revised sharply down to show a 1.2 percent plunge instead of the previously reported 0.6 percent drop. Construction spending increased 2.5 percent on a year-on-year basis.

In other news, Dallas Fed President Robert Kaplan said the Federal Reserve will need to “look hard” at whether it should raise rates in December, but there is no need to wait for inflation to actually get to, or even begin to rise back to, the Fed’s 2-percent target before doing so.

“I need to see some evidence that I think the cyclical forces are picking up enough that eventually it’s likely that inflation will start to build in the future, even if I can’t see it yet,” Dallas Fed President Robert Kaplan, a voting member this year on the Fed’s policy committee, told reporters in El Paso.

E-mini S&P 500 Index
Daily December E-mini S&P 500 Index

U.S. Stocks

U.S. equity indexes closed at record highs on Monday, following through on the strong momentum leftover from last quarter’s solid gains. The Dow was led higher by strong gains in Goldman Sachs. The S&P 500 Index was underpinned by health care and financials. The NASDAQ Composite posted the smallest gain, dragged down by weak performances in Facebook, Netflix and Alphabet. Small-cap stocks also continued to rally on the back of a stronger economy and the new tax reform plan.

Gold
Daily December Comex Gold

Gold

Gold fell to its lowest level in over 7 weeks, pressured by rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher-yielding assets. Rising expectations for a third Fed rate hike before the end of the year also pushed gold prices lower as well as an easing of tensions over North Korea.

Crude Oil
Daily November WTI Crude Oil

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil tumbled on Monday on concerns that a global supply glut may not be clearing as quickly as some had hoped.

Traders are saying that seasonality may have a negative effect on crude oil prices. According to research, the fourth quarter has not been good for crude oil appreciation historically. Traders blamed this occurrence on the switch from summer demand to expectations of winter demand. Analysts are also saying that a lot of refinery maintenance occurs at this time so feeder demand is not there.

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