U.S. Dollar Supported by Hawkish Fed Member Comments

The U.S. Dollar rose against a basket of major currencies on Monday, supported by higher U.S. Treasury yields. An easing of global trade tensions helped support the move in yields.

On Monday, June U.S. Dollar Index futures settled at 92.462, up 0.051 or +0.06%.

Essentially, the increased demand for the U.S. Dollar was being fueled by a widening of the interest rate gap between the United States and some other developed economies. One catalyst for this was the divergence between the hawkish monetary policy of the Fed and the dovish monetary policies of a few major policymakers like the European Central Bank.

The benchmark 10-year Treasury note yield moved higher on Monday, as trade tensions eased in the wake of U.S. President Donald Trump’s pledge to help Chinese telecommunications company ZTE, which has been penalized for violating U.S. sanctions with Iran.

Economic Reports and Fed Speakers

There were no major U.S. economic reports, but early Monday, traders did get the opportunity to react to comments from FOMC Member Loretta J. Mester.

Speaking in France, Cleveland Fed President Mester said the Federal Reserve should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank’s 2 percent goal in a sustained way.

“In my view, the medium-run outlook supports the continued gradual removal of policy accommodation; it seems the best strategy for balancing the risks to both of our policy goals and avoiding a build-up of financial stability risks,” Mester said in prepared remarks for a speech in Paris.

Mester also said she does not expect inflation to pick up sharply, adding that while it is close to the Fed’s symmetric 2 percent target, it will only reach that level on a sustainable basis over the next one to two years.

“We want to give inflation time to move back to goal…this argues against a steep path,” she said.

St. Louis Federal Reserve President James Bullard said on Monday the U.S. yield curve could invert later this year or early 2019. This is a market move in which short-term U.S. interest rates rise above longer-term bond yields, a scenario which has preceded recent U.S. recessions.

Gold

Gold lost a little of its luster on Monday after a decent performance last week. Gains were capped and speculators encouraged to book profits after a Federal Reserve official supported the notion of further interest rate hikes later this year.

June Comex Gold futures settled at $1320.70, up $6.00 or +0.46%.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rose on Monday after a new report showed the tightening market has all but eliminated a global supply overhang which depressed crude prices between late 2014 and early 2017.

July WTI crude oil settled at $70.99, up $0.31 or +0.44% and July Brent crude oil finished at $78.23, up $1.11 or +1.42%.