Dollar Weakness Due to Perception of Fed Stance Drives Markets

It’s best to start with U.S. dollar weakness today because it has affected most other markets. The greenback is down against the euro, yen, British pound and Swiss franc. The dollar is sliding because of a thousand small cuts to its strength rather than some large crisis of confidence.

It is at a nearly eight-week low against the euro mainly because analysts are seeing a continuing diminishing chance of a Federal Reserve rate hike. Whether the experts are right or not is immaterial for the nonce. The market reads, then the market acts.

The lower buck is very good for gold. It is higher by about $3.50 at 4PM in New York solely on the back of dollar weakness. A lower dollar means higher gold prices. In fact, regular trading is tugging gold in a downward direction but without much success.

There has indeed been a lot of conflicting opining from the Fed, including right up to the President of the New York Fed, a key player, who seemed to be leaning toward hawkishness in a statement issued this week. Not everyone agrees.

"The market's take on the FOMC minutes is to read them in a somewhat more dovish fashion on the view that the Fed seems too divided to raise rates anytime soon," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

Energy was certainly helped by the lower dollar but it was also helped by more attempts by OPEC to talk the price of crude up. Saudi Arabia is hinting at a real possibility of a price freeze or boost. It is up on the day over 3.00%.

However, we’ve been down this dusty road before. The Saudis are perceived as the boys who cried wolf one too many times. They have to act, or stop talking so much.

U.S. equities seem rudderless for the moment, which is a bit surprising given the positive impact low interest rates usually have on stock markets. It seems even odder when you consider that West Texas Intermediate has risen by $9.00 per barrel since the beginning of August, a 23.00% jump.

Perhaps, as we have said elsewhere in our analyses, equities have entered a “resting period” that is something milder than a consolidation but is not exhibiting an immediate bullish energy. Nevertheless, the three major U.S. indexes notched marginal gains.

Asian equities were lower to mixed and Europe was up but weakly so.

On the general sentiment that a Federal Reserve rate hike is not in the immediate offing, U.S. Treasury bonds saw lower yields today, reversing a recent trend. Bond traders had been betting, if somewhat timidly, on a September rate increase.

Wishing you as always, good trading,