U.S. Dollar Crushed by Weak Producer Inflation Data, Hawkish ECB Minutes

A double-shot of negative news drove the U.S. Dollar lower against a basket of currencies on Thursday. The dollar was pressed lower by a combination of weaker-than-expected U.S. producer inflation and comments by the European Central Bank that it could be preparing to trim its massive monetary stimulus.

March U.S. Dollar Index futures settled at 91.608, down -.462 or -0.50%.

On Thursday, U.S. producer price data showed the index fell for the first time in nearly 1 ½ years in December, which could temper expectations that inflation will accelerate in 2018.

The Labor Department said its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.

In the 12 months through December, the PPI rose 2.6 percent after accelerating 3.1 percent in November. Economists had forecast the PPI rising 0.2 percent last month and increasing 3.0 percent from a year ago.

Last year, the PPI increased 2.6 percent after advancing 1.7 percent in 2016.

Also on Thursday, the Euro, which accounts for about 57 percent of the index, rallied after ECB policymakers said in minutes of the bank’s December meeting that they could revisit their communication stance in early 2018, boosting expectations that they are preparing to reduce their vast monetary stimulus program.

The EUR/USD rallied because investors interpreted the minutes as hawkish since they could be signaling that the ECB will wind down its 2.55 trillion Euro ($3.07 trillion) bond purchase scheme this year if Europe’s economy continues to grow.

Gold

Gold prices rose on Thursday as the safe-haven asset continued to climb towards a four-month high after minutes of a European Central Bank meeting showed a more hawkish tone and boosted the Euro against the U.S. Dollar.

Gold buyers also responded to weak economic data which drove down the U.S. Dollar, helping to boost demand for the dollar-denominated commodity. Buyers also increased bets the Fed may have to cut back on the number of interest rate hikes it forecast at its last meeting in December.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rallied to multi-year highs on Thursday after the United Arab Emirates’ (UAE) oil minister hinted that an alliance between OPEC and non-OPEC producers, including Russia, could continue in some way beyond their current deal to curb oil output.

U.S. Stock Markets

The three major U.S. stock indexes reached record highs on Thursday after weak U.S. producer inflation data suggested the Fed may have to cut its forecast for three interest rate hikes in 2018. Some investors attributed the rally to speculative bets that economic growth would pick up steam.