U.S. Dollar Pressured by Mixed Fed Minutes, Fading Hopes on Trump’s Tax Plan

The U.S. Dollar declined against a basket of currencies on Wednesday, hitting a two-week low, in reaction to the U.S. Federal Reserve minutes which revealed that central bank policymakers are open to an interest rate hike in December, but are still concerned about weak inflation.

December U.S. Dollar Index futures settled at 92.83, down 0.276 or -0.30%.

The dollar also fell under pressure on fading hopes on Trump’s tax plan. Additionally, the Euro, which represents 57 percent of the index, reached a two-week peak on less worries about Catalonia.

According to the Fed minutes, several policymakers expressed some concerns over low inflation, saying they would like more data in the next few months when deciding on future rate hikes. That view pointed to a divergence between the Fed and the financial markets. Essentially, the view within the Fed raised some doubts among traders that third rate hike in 2017 would be a sure thing, though it has largely been priced into the futures market.

Some traders went as far as to say the comments on concerns about the inflation outlook can be interpreted as dovish. The futures markets, on the other hand, suggested traders saw an 88 percent chance the Fed would raise rates in December, little changed from before the release of the September meeting minutes, CME Group’s FedWatch program showed.

Traders were also concerned that an on-going dispute between U.S. President Trump and Senator Bob Corker could derail his tax reform plan.

The dollar index also lost ground after the Euro posted solid gains, supported by expectations that the European Central Bank would announce at its policy meeting near the end of October that it would wind back its 2.3 trillion Euro-buying program.

U.S. Equity Markets

The major U.S. equity indexes finished higher on Wednesday as stock investors interpreted the Fed minutes to mean the economy is strong enough to withstand another interest rate hike in December.

Stock traders became more convinced of a Fed rate hike after the September 20 monetary policy meeting summary said, “Consistent with the expectation that a gradual rise in the federal funds rate would be appropriate, many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged.”

Additionally, stock traders have taken the rising probability of a rate hike in stride since inflation is still relatively low and interest rates are only slightly above historic lows.

Gold

Gold closed lower on Wednesday as investors showed a mixed response to the Fed minutes and other external factors.

Increased chances of a Fed rate hike weighed on gold prices, but concerns over low inflation were supportive. Also underpinning gold was the news that Catalonia’s leader balked at making a formal declaration of independence from Spain, sending the Euro higher and the U.S. Dollar down.

Due to the importance of the Fed minutes, gold traders showed limited response to reports that the U.S. military flew two strategic bombers over the Korean peninsula in a show of force late Tuesday and that President Trump met top defense officials to discuss how to respond to any threat from North Korea.

Crude Oil

U.S. West Texas Intermediate and internationally-favored crude oil futures finished slightly higher on Wednesday as investors prepared for the release of weekly inventories data from the American Petroleum Institute (API) on Wednesday and the U.S. Energy Information Administration (EIA) on Thursday.

Oil prices rose for a third day on Wednesday as OPEC forecast higher demand for 2018 and heightened tensions in Kurdistan supported prices.