Stronger-than-Expected Reports Underpin U.S. Dollar

Foreign currency and commodity markets were mixed on Friday and volume was light after a tumultuous trade earlier in the week.  The price action suggest that the markets are still adjusting to three devaluations by the People’s Bank of China earlier in the week.

In the U.S., wholesale prices climbed at a slower pace in July, probably caused by the steep sell-off in the crude oil market. According to the Labor Department, the producer-price index increased 0.2 percent in July, In June, the PPI posted a 0.4 percent increase. Traders were looking for a 0.1 percent increase.

U.S. industrial production for July rose 0.6 percent. This beat the expected 0.3 percent gain. The gains were fueled by a surge in auto production. The preliminary reading for August consumer sentiment came in at 92.9 below the estimated 93.5.

The combination of all three U.S. economic releases helped the U.S. Dollar firm.

The better-than-expected U.S. economic data weighed on the EUR/USD and GBP/USD. In Europe, the Euro weakened after flash Euro Zone GDP estimates missed expectations. Additionally, some of the selling was related to a key Euro Zone member meeting about Greece’s new bailout plan.

The Euro Zone also reported Final CPI at 0.2% as expected. Quarterly Flash GDP came in at 0.3%. This was slightly below the 0.4% estimate.

There was no news out of the U.K. and the GDP/USD traded flat for a third day. Economic data this week suggested that the Bank of England will likely push an interest rate hike into mid-2016. The market could remain range bound until next Tuesday when the U.K. reports its latest consumer inflation data. The report is expected to show a reading of 0.0%.

December Comex Gold prices hovered between up and down most of the session. The easing of the turmoil caused by China’s devaluation of the Yuan encouraged profit-taking after a strong rally earlier in the week. The stronger dollar also put a lid on any rallies.

October Crude Oil reached a new low for the year earlier in the session, but rebounded back to unchanged. The global supply glut continues to weigh on prices, however, there is some talk that oversold conditions may lead to a short-term, short-covering rally next week.

Also signs of increased U.S. demand has some short-sellers concerned about future downside potential. Earlier in the week, the U.S. Energy Information Administration reported a sharper draw down than expected in gasoline inventories. This could lead to increased demand for crude oil over the near-term. Later today, traders will be focusing on the latest rig count from Baker Hughes, Inc.