Rising U.S. Rates Drive Dollar to Highest Level in Two Weeks

The week ended with the U.S. Dollar posting a solid gain against a basket of major currencies on Friday, pressuring precious and industrial metals. Additionally, stocks fell for a second day, crude oil closed only slightly better and natural gas surged ahead of the week-end.

U.S. Dollar Index

The U.S. Dollar rose against a basket of major currencies to its highest level since April 6 and in a position to challenge its last main top at 90.295 on Friday on rising U.S. Treasury yields.

June U.S. Dollar Index futures settled at 90.075, up 0.380 or +0.42%.

High U.S. Treasury yields contributed to the rise in the dollar all week. U.S 2-Year Treasury yields reached 2.453 percent on Friday, the highest level since September 2008 as the two-year’s spread versus two-year German Bunds grew to 302 basis points, the widest in more than three decades.

The dollar was also supported by a decline in the Euro, British Pound and Australian and New Zealand Dollars.

The widening of the interest rate differential between U.S. Government Bonds and German Bunds contributed to the weakness in the EUR/USD. Investors also triggered record bets ahead of the European Central Bank meeting next week where policymakers are largely expected to signal no change in policy.

Dovish comments from the head of the Bank of England, Governor Mark Carney, helped pressure the GBP/USD as well as weaker-than-expected U.K. inflation and retail sales data.

Commodity-linked currencies like the Australian and New Zealand Dollars also came under pressure in reaction to a drop in the Chinese stock market.

Gold

Gold prices retreated on Friday and finished the week lower as the dollar advanced to a two-week high on expectations of higher interest rates and as geopolitical tensions eased over North Korea, Syria and the potential trade war between China and the United States.

On Friday, June Comex Gold settled at $1338.30, down $10.50 or -0.78%.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted a wicked two-sided trade on Friday before settling slightly better.

June WTI crude oil settled at $68.40, up $0.07 or +0.10% and June Brent crude oil closed at $74.06, up $0.28 or +0.38%.

The markets broke sharply early in the session after President Donald Trump suggested in a tweet that OPEC is keeping oil prices artificially high.

In other news, a weekly count of oil rigs operating in U.S. fields ticked up by 5 to a total of 820, oilfield services firm Baker Hughes reported on Friday.

Natural Gas

Natural gas futures finished sharply higher on Friday, erasing Thursday’s steep loss. A growing storage deficit and a slow start to injection season is helping to maintain the bullish tone.

June Natural Gas futures settled the session at $2.767, up $0.072 or +2.67%.