U.S. Dollar Supported by Rising Treasury Yields Ahead of Inflation Data

September U.S. Dollar Index futures finished relatively flat on Tuesday, which may be a sign that the upside momentum driving the market higher this week may be waning. The index is being supported by a huge bounce in U.S. Treasury yields. Position-squaring and profit-taking after a recent steep break and ahead of this week’s U.S. inflation data may also be behind the rally.

The September U.S. Dollar Index futures contract closed at 91.856, up 0.003 or 0.00%.

Receding worries about North Korea and Hurricane Irma also encouraged investors to unwind bearish bets against the Greenback, lifting investor risk sentiment.

U.S. Treasury Yields

U.S. Treasury yields reached a two-week high on Tuesday. This news helped make the dollar a more attractive investment, driving it higher against all major currencies.

Rising yields were supported by investors digesting fresh economic data and auction results. The yield on the benchmark 10-year Treasury Note move to 2.171 percent, while the yield on the 30-year Treasury Bond rose to 2.775 percent.

Economic News

The National Federation of Independent Business’ (NFIB) small business optimism index rose to 105.3 in August from 105.2 in July.

The U.S. Labor Department’s latest Job Openings and labor Turnover Survey (JOLTS) report found job openings little changed at 6.2 million on the last business day of July. The report also showed that in July, hire and separations were also little changed at 5.5 million and 5.3 million, respectively.

The Treasury Department auctioned $20 billion in 10-year notes at a high yield of 2.18 percent. The bid-to-cover ratio, an indicator of demand, was 2.28.

The yield was actually one full basis point above the when issued. The bid to cover of 2.28 was well below the one year average of 2.42 percent.

Hurricane Irma was downgraded from a Category 5 hurricane to a tropical storm. Investors are now waiting for reports on its impact to Florida’s economy.

Traders are continuing to monitor the situation in the Korean Peninsula after the United Nations Security Council stepped up pressure on the country’s textile exports and capped imports on crude oil.

Gold

Gold fell to its lowest level in more than a week on Tuesday as reduced concerns over North Korea and the minimal impact of Hurricane Irma drove investors into equities. A steady dollar and firm Treasury yields also made gold a less-attractive investment.

Gold traders also shifted their focus on U.S. inflation reports later this week and their potential impact on Federal Reserve policy. The Fed meets next week to discuss the direction of interest rates.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled higher on Tuesday. The catalyst behind the strength was a report showing OPEC oil production fell for the first time since March. Helping to limit gains was a stronger U.S. Dollar which could have an impact on demand.

According to a monthly report, OPEC’s oil output fell in August for the first time since March as several key exporters in the cartel throttled back production.

The report showed the cartel pumped 32.76 million barrels a day last month, according to independent sources that monitor OPEC’s production. This was a 79,100 barrel-a-day drop from July.

Earlier in the week, prices received support as Saudi Arabia held discussions about extending the deal to curb production, reduce supply and stabilize prices beyond the March deadline.