U.S. Dollar Underpinned by Somewhat Hawkish Fed Minutes

The U.S. Dollar closed higher against a basket of currencies on Wednesday in response to strong U.S. economic data and somewhat hawkish minutes from the Federal Reserve’s latest policy meeting. Increased appetite for risk also supported the dollar against safe-haven assets like the Japanese Yen and the Swiss Franc.

March U.S. Dollar Index futures settled at 91.896, up 0.323 or +0.35%.

U.S. Economic News

On Wednesday, the U.S. released a slew of economic data in addition to the Fed minutes. ISM Manufacturing PMI came in at 59.7, beating the 58.1 forecast. Construction Spending grew 0.8%, higher than the 0.6% estimate. ISM Manufacturing Prices were 69.0, coming in well above the 64.8 forecast. Total Vehicle Sales were 17.9 million. Traders were looking for 17.5 million.

Timothy R. Fiore, chair of the ISM, said:  “This indicates growth in manufacturing for the 16^th consecutive month, led by strong expansion in the new orders and production with hiring growing at a slower rate and supplier deliveries continuing to struggle.”

“New orders expansion continues at a strong pace, with the index at seven straight months of levels above 60,” Fiore said.

U.S. Federal Reserve Minutes

The minutes from the Fed’s December 12-13 meeting were seen as more hawkish than anticipated, indicating the central bank is still poised to raise interest rates several times this year.

Additionally, Fed policymakers acknowledged the U.S. labor market’s solid gains and the expansion in economic activity, even as they affirmed policymakers’ worries about persistently low inflation.

That suggested the central bank will continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Gold

Gold posted a two-sided reaction to Wednesday’s U.S. economic news and the Fed minutes before closing slightly higher. Early in the session, gold hit a 3 ½ month high before prices retreated. Gold’s rally may have also been limited by increased demand for higher-yielding assets.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures surged on Wednesday. U.S. crude topped $61.00 a barrel for the first time in 2 ½ years. The markets got a boost from strong U.S. economic data and worries about an escalation of unrest in Iran.

Oil futures were helped by strong U.S. manufacturing data and a report that showed German unemployment had reached a record low. Concerns over protests in Iran, OPEC’s third largest oil producer, have underpinned the markets this week although there have been no issues with supply.