Dollar Rises After U.S. Producer Inflation Rebound in August

The U.S. Dollar posted a solid gain against a basket of currencies on Wednesday after a report showed U.S. producer prices rebounded in August and as traders shifted their focus to consumer inflation data due on Thursday. Both producer and consumer inflation data will be important to the Federal Open Market Committee when it meets next week to discuss monetary policy.

September U.S. Dollar Index futures settled at 92.508, up 0.652 or +0.71%.

The index rallied after the U.S. Labor Department said its producer price index for final demand increased 0.2 percent in August after slipping 0.1 percent in July. The rebound was driven by a surge in the cost of gasoline.

While the rebound suggests that the U.S. economy is holding on to underlying momentum, traders should note that the overall demand picture may not lead to an increase in consumer prices. All the producer price data showed was that the U.S. economy was retaining underlying momentum. Domestic producer prices actually came in less than forecast.

The Fed meets next week, but is not expected to raise rates.

Forex

The GBP/USD hits its highest level in a year, but a massive wave of selling pressure drove the Forex pair lower for the session, forming a potentially bearish closing price reversal top chart pattern. The catalyst behind the selling pressure was weaker-than-expected U.K. wage growth which may have curtailed the Bank of England’s plans to raise rates in response to a surge in inflation.

Gold

Gold retreated to its lowest level in 1 ½ weeks on Wednesday in response to a jump in the U.S. Dollar Index. Weaker stock prices probably prevented further losses.

Low volatility in higher risk assets and a more cautious approach by investors has led to profit-taking weakness in gold this week.

Demand for gold as a safe-haven asset has dropped this week due to reduced concerns over North Korea.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied sharply higher on Wednesday in response to a bullish report from the International Energy Agency (IEA).

According to the IEA, global oil demand is set to accelerate faster than anticipated this year. Strong second-quarter demand has buoyed oil markets, which have been struggling to rebalance as a supply glut has weighed heavily on prices, the IEA said in its September report released on Wednesday.

In other news, U.S. crude stockpiles rose sharply last week and gasoline inventories fell the most on record as refineries continued to be hampered by damage from Hurricane Harvey, the Energy Information Administration said on Wednesday.

Crude inventories rose 5.9 million barrels, compared with analysts’ expectations for an increase of 3.2 million barrels.