U.S. Dollar Stumbles on Concerns About Timing of Future Fed Rate Hikes

The Euro and British Pound rallied on Thursday while gold and crude oil firmed at times, all due to the weaker U.S. Dollar. The weakness in the dollar started on Wednesday with the release of the FOMC minutes. According to some traders, the dollar failed to gain traction because the minutes revealed a less-hawkish Fed than the central bank’s monetary policy statement. The price action suggests that it may take more than next month’s expected Fed rate hike to drive it higher.

Although the minutes stated that a U.S. rate hike in December may now be “appropriate”, a move that drove Treasury yields higher, it failed to ignite a rally in the U.S. Dollar. EUR/USD short-sellers appear to have used the release of the minutes as an excuse to book profits. This triggered a short-covering rally that carried over into today. Similar price action took place in the GBP/USD.

The price action in the U.S. Dollar may also mean that a December rate hike has been fully-priced into the value of the dollar. If this is the case then investors are already looking beyond the first rate hike.

December Comex Gold futures bounced off a multi-year low because of the weaker U.S. Dollar. Like the Euro, traders used the Fed minutes as an excuse to trim their short positions. Technical factors also contributed to the price rise since today’s session began with the precious metal in extremely oversold territory as suggested by several popular indicators.

The weaker U.S. Dollar failed to support January Crude Oil prices as investors continued to focus on the global supply glut. The recent price action suggests that investors still believe that there will eventually be a balance between supply and demand, but that there are too many downside risks to initiate long positions at current price levels.

In other news, weekly initial jobless claims came in at 271,000 and the Philadelphia Fed Manufacturing survey for current activity came in for November at 1.9, its first positive reading in three months.

Several Fed speakers could move the markets later in the session. Atlanta Fed President Dennis Lockhart is set to speak at the DeKalb Chamber of Commerce in Georgia at 12:30 p.m. ET, and Fed Vice Chairman Stanley Fischer will be at the San Francisco Fed at 4:45 p.m. ET, discussing emerging Asia.

Earlier today, Cleveland Fed President Loretta Mester, said on CNBC’s “Squawk Box” that policymakers are not boxed in on rates and that she doesn’t think the Fed is beyond the curve.

In summary, today’s price action was primarily driven by the weakness in the U.S. Dollar which was fueled by worries about the timing of future rate hikes. A December rate hike appears to be a done deal to most traders, however, the market now wants to know when the next one is coming.