Investors Moving Money Out of Risky Assets into Safe Haven Markets

Tension over North Korea and comments from Fed speakers on Tuesday pressured the U.S. Dollar while driving the price action in several other financial markets. Traders also remained nervous ahead of the European Central Bank’s monetary policy decision on Thursday.

September U.S. Dollar Index futures closed at 92.226, down 0.543 or -0.59%.

Traders continued to respond to the events in North Korea and the price action in the safe haven assets and the stock market strongly suggest that investors are getting concerned about the lack of progress towards reducing the threat of a nuclear war.

On Sunday, North Korea conducted its sixth and most powerful nuclear test to date. The news was met with condemnation from across the globe, with the G-7 releasing a statement on Monday condemning the nuclear test by North Korea “in the strongest possible terms.”

The White House followed up by saying that “all options to address the North Korean threat are on the table,” according to Reuters.

The dollar was further pressured on Tuesday after Fed Governor Lael Brainard said the U.S. central bank should go so far as to make it clear it is comfortable pushing prices modestly above the Fed’s 2-percent target.

“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard, a permanent voter on monetary policy, said in a speech in New York.

Later on Tuesday, Minneapolis Fed President Neel Kashkari said that the Fed rate hikes may be slowing inflation, wage growth, and job growth.

“There may be a lot more slack in the labor market than we appreciate,” Kashkari said. “The Fed may have allowed inflation expectations to drift lower.”

Gold

Gold prices were supported on Tuesday by continued concerns over North Korea’s nuclear posturing and the weaker U.S. Dollar. Much of gold’s rally can be attributed to the flight into so-called “safe-haven” assets due to the geopolitical uncertainty that has been stoked up by the events in the Korean peninsula.

Traders reacted on Tuesday to reports that North Korea had been observed moving what appeared to be an intercontinental ballistic missile (ICBM) towards its west coast, South Korea’s Asia Business Daily reported on Tuesday.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent Crude Oil rose sharply higher on Tuesday as more refineries and pipelines started moving crude oil and fuel-related products. Last week, Hurricane Harvey disrupted about 20 to 25 percent of U.S. refining capacity. As of Tuesday, Houston and the Port Arthur-Beaumont, Texas were still recovering.

According to reports, about 3 million barrels a day, or 16 percent of U.S. refining capacity, remained offline or in preliminary restart mode on Monday evening.

Meanwhile, another hurricane is developing in the South Atlantic that could have an impact on gasoline demand. Hurricane Irma may strike Florida over the week-end as a category 5 hurricane. This could lead to a drop in demand for both gasoline and crude oil in the area. At this time, there is still some uncertainty over which area of the country the hurricane will strike.