U.S. Dollar Retreats After Fed’s Preferred Measure of Inflation Disappoints

The U.S. Dollar put in a mixed performance on Thursday, but September U.S. Dollar Index futures closed lower, mostly due to a dramatic turnaround in the Euro.

The index was up early in the session as traders continued to respond to Wednesday’s better-than-expected U.S. Preliminary GDP report. However, it began to turn down after mixed U.S. economic data raised doubts over the Federal Reserve’s ability to raise interest rates later this year.

Economic Data

U.S. consumer spending rose slightly less than expected in July, coming in at 0.3%. Personal income came in at 0.4%, slightly better than forecast

Weekly unemployment claims were 236K, slightly below the 237K estimate. The Challenger Jobs Cuts was 5.1%

Annual inflation increased at its slowest pace since late 2015. The so-called core personal consumption expenditures increased 1.4 percent in July on a year-over-year basis. The core PCE is the Federal Reserve’s preferred measure of inflation, and it’s lagging the central bank’s 2 percent target.

Pending home sales were also a big disappointment, coming in at -0.8%. Traders were looking for a 0.4% read.

At the end of the session, market expectations for a December rate hike were just 31 percent, according to the CME Group’s FedWatch tool.

In other news, Treasury Secretary Steven Mnuchin told CNBC on Thursday that the Trump Administration has a “very detailed” tax plan, adding they expect to push it through before year-end.

Mnuchin also suggested on CNBC that a weaker dollar might have advantages for U.S. trade. Additionally, he said that tropical storm Harvey which ravaged Texas could bring forward the deadline by which the nation’s debt ceiling needs to be raised.

Crude Oil

U.S. crude oil prices closed 2.76% higher and international-benchmark Brent crude oil settled up 4.20% on Thursday, rebounding from losses made earlier in the session. However, it wasn’t enough to stop U.S. crude oil from its steepest monthly loss in more than a year on demand concerns after floods knocked out a quarter of U.S. refining capacity.

U.S. gasoline futures continued to soar, with prices hitting a two-year high above $2 a gallon, boosted by fears of a fuel shortage just days ahead of the Labor Day weekend that typically brings a surge in driving while marking the end of the U.S. driving season.

In other news, the U.S. Energy Department said on Thursday it would release 500,000 barrels of crude oil from the Strategic Petroleum Reserve.

The Colonial Pipeline Co, which operates the biggest U.S. fuel transport system, said it would shut its main lines to the Northeast amid outages at pumping points and lack of supply from refiners.

Gold

Gold prices rose on Thursday in response to the lower U.S. Dollar. Rising security concerns created by tensions on the Korean peninsula supported sentiment.

The dollar fell as U.S. Treasury yields declined in response to weak U.S. economic data which greatly reduced the chances for a Fed rate hike later this year.

Geopolitical tensions remained at the forefront as investors continued to monitor the situation between North Korea and South Korea. Earlier in the week, North Korea fired a missile over Japan. That was followed two days later by South Korea’s air force conducting an exercise with two U.S. nuclear-capable bombers above the Korean peninsula on Thursday.