U.S. Dollar Index Turns Higher as North Korean Fears Subside

The U.S. Dollar recovered from any early session sell-off on Tuesday after hitting its lowest level in more than 2 1/2 years as traders shrugged off concerns surrounding a North Korean missile launch over Japan on Monday.

September U.S. Dollar Index futures settled at 92.184, up 0.044 or +0.05% after touching a low of 91.550.

The Greenback was pressured early as investors moved their money into so-called safe-haven currencies in response to North Korea’s launch of a ballistic missile over northern Japan’s Hokkaido Island into the sea.

The immediate response to the news was to sell the USD/JPY, which drove the Forex pair into a 4 ½ month low. By the end of the session, however, the Dollar had recovered enough against the Japanese Yen to post a 0.46% gain. The missile launch had in part prompted short-term speculators to buy back Yen in an unwinding of so-called carry trades.

The EUR/USD posted a potentially bearish closing price reversal top on profit-taking and position-squaring. This move was the biggest influence on the U.S. Dollar Index. Earlier in the session, the Euro had broken through the psychological 1.2000 level, on its way to a more than 2 ½ year high.

Gold

Gold prices jumped to their highest level since November 9 on Tuesday as investors bought bullion to offset risks perceived in higher-yielding assets. Early in the session gold was driven by a drop in the U.S. Dollar and a steep decline in U.S. stock markets. The weakness in the Greenback made dollar-denominated gold a more attractive asset to foreign buyers. Additionally, investors selling their positions in stocks parked their proceeds into gold. Investors also used gold as a hedge against further declines in equities.

By the end of the session. Gold had retreated well off its high as the dollar and stock markets recovered, prompting bullion investors to book profits and reduce speculative positions.

Crude Oil

Crude oil prices continued to fall on Tuesday in response to lower demand due to refinery shutdowns in the wake of Hurricane Harvey. Refinery capacity is being adversely affected by severe, widespread flooding. There are reports that the largest refinery in the U.S. is currently operating at just 60 percent capacity.

According to CNBC, the largest crude oil refinery in the United States, operated by Motiva Enterprises, was shutting down on Tuesday night due to flooding from Harvey in its 603,000 barrel-per-day (bpd) Port Arthur plant in Texas.

Economic News

The S&P/CS Composite-20 HPI rose 5.7%, matching last month’s figure, but coming in slightly above the forecast. The Conference Board’s Consumer Confidence report beat expectations with a 122.9 reading. Traders were looking for 120.9. Last month’s figure was lowered to 120.0.