U.S. Dollar Index Plunges to Lowest Level in 16 Months

U.S. Dollar Index futures plunged to its lowest level in about 16 months as investors continued to react to speeches from U.S. Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi on Friday at the central Bankers’ conference at Jackson Hole, Wyoming. The Greenback was also pressured by concerns over the economic damage caused by Hurricane Harvey.

September U.S. Dollar Index futures settled at 92.14, down 0.537 or -0.58%.

Most of Monday’s loss was attributed to a surge in the Euro which represents about 57 percent of the index. The single-currency soared to a 2 ½-year high against the dollar. The dollar was also down slightly against the Japanese Yen, Australian Dollar and New Zealand Dollar.

Investors continued to focus on the Euro because next week the ECB is expected to announce plans to begin reducing its current stimulus package at its September policy meeting.

At Jackson Hole last Friday, Draghi did not seem to be overly concerned with current Euro levels, which basically gave investors permission to drive the Euro higher.

In her speech at the Jackson Hole symposium, Yellen did not mention monetary policy, lowering expectations for a Fed rate hike later this year.

The dollar also weakened after Hurricane Harvey and the accompanying rain storm paralyzed Houston, Texas, the nation’s fourth-biggest city. The continuous rain pour has not allowed officials to assess total economic damage yet, but it is expected to be in the billions of dollars. Current conditions have primarily affected the oil and petrochemical industries.

Crude Oil

U.S. West Texas Intermediate crude oil futures were hit hard by traders on Monday, falling nearly 3 percent, after Hurricane Harvey caused massive flooding along parts of the Texas Gulf Coast, a major petroleum refining hub.

Several refineries have shut down because of the dire conditions, while ports in the area were closed to all incoming and outgoing traffic. The flooding is so widespread that government and company oil company officials are saying that workers will not be able to access the facilities for days. The U.S. Gulf Coast is home to nearly half of U.S. refining capacity.

Nearby gasoline prices spiked higher to their highest level since late July 2015, as the refinery outages threatened to create a short-term supply shortage. At the same time, crude oil prices plunged because of lower demand expectations. The storm is expected to continue to be bearish for crude oil prices because refineries will not be able to operate at the high run rates seen in July and August, reducing demand for crude.

 

Gold

Gold prices soared to their highest level since November 2016 in reaction to lower U.S. Treasury yields, a weaker U.S. Dollar and lower demand for higher risk assets. Further supporting gold was geopolitical uncertainty over the North American Free Trade Agreement, which is being renegotiated by the U.S., Canada and Mexico.

In other news, according to the U.S. Commodity Futures Trading Commission, speculators raised their net long position in COMEX gold for the sixth straight week in the week to August 22.

Economic News

Today’s economic reports had very little impact on the financial markets. The Goods Trade Balance came in roughly as expected at -65.1 billion versus an estimate of -64.5 billion. Preliminary Wholesale Inventories were also slightly bearish, coming in at 0.4% versus a 0.3% estimate.