U.S. Dollar Firms as Worries Over China Subside

A stronger U.S. Dollar helped pressure foreign currencies and commodities on Thursday. The dollar firmed on U.S. economic news and as worries over China largely subsided.

U.S. Retail Sales for July rose 0.6 percent, matching trader estimates. According to the Commerce Department, a rise in auto sales was the catalyst behind the firm data. June’s Retail Sales were also revised higher to unchanged, better than the previously reported 0.3 percent decline.

Some traders discounted the retail sales increase, saying that without auto sales there really wasn’t an increase.

In other news, weekly jobless claims came in at 274,000, slightly above the consensus estimate of 270,000. Import prices fell 0.9 percent, largely due to lower oil costs and a strong dollar.

Traders kept a close eye on activities out of China. The People’s Bank of China devalued the Yuan for a third consecutive day, but the reaction was muted as investors seemed better prepared for the move following two days of excessive volatility. This helped lessen some of the previous concerns caused by the PBOC’s intervention.

December Comex Gold futures weakened on profit-taking as worries subsided after China’s third intervention was readily absorbed by the financial markets. The stronger dollar also encouraged commodity funds to refresh their bearish positions after several days of short-covering drove prices to their highest levels since mid-July.

October Crude Oil prices fell to their lowest level of the year with the market dropping almost 1 percent on Thursday. Although this week’s U.S. Energy Information Administration inventories report showed another draw down, the pace of the declines can’t keep up with production levels. The size of the global supply glut and the increased U.S. and OPEC production are likely to drive this market into the psychological $40.00 level by next week.

The latest European Central Bank minutes released earlier today showed that officials are more confident over inflation and the ability of current policy to prevent deflation. The minutes said that the ECB believes it succeeded in warding off the threat of falling prices and that inflation may have reached a “turning point”.

The ECB also said that inflation will continue to be closely monitored. It also expressed concerns about the Euro Zone’s downside risks. At this time, lower energy prices and a lower Euro are helping to improve the net export outlook, however, this conditions could easily be reversed. This week’s developments in China might also have greater implications to the Euro Zone.

The stronger U.S. Dollar and yesterday’s dismal labor outlook helped pressure the GBP/USD on Thursday. Conditions could continue to weaken over the near-term now that the likelihood of an interest rate hike by the Bank of England has been pushed into mid-2016.