A weaker dollar both yesterday and early on in the European session offered some support to commodity prices on Wednesday as the dollar index slipped back towards 88.155 yesterday before recovering to a close of 88.690 giving hope to investors. The greenback remained under pressure throughout most of today’s session with the dollar index trading below 88.350 against a basket of major peers as momentum for a long overdue correction gathered pace. Having spent much of the first half of the year trading sideways around 80.00 the dollar index has rallied strongly since July, adding just over 11% in the past six months. As the underlying macroeconomic conditions in the US remain positive compared to China and the eurozone we could see the rally higher resume in the near term, with crucial support around 88.00 remaining untested for now.
European stocks traded tentatively higher earlier on today as investors shrugged off yesterday’s concerns regarding the Greek political situation with London markets, the CAC and DAX all edging into positive territory. However, gains were short lived as we neared the opening bell on Wall Street with ongoing crude oil price weakness still weighing heavily on markets, leading to some late session selling pressure. The initially stable outlook failed to spill over to the US trading session as both the S&P 500 and DJIA traded lower from the open, dragged down by energy stocks owing to continued pressure from softer crude oil prices. Front month WTI prices traded below $62/bbl for the first time since July 2009, down over 2% on the day.
Market participants will be eagerly awaiting the Fed’s monthly budget statement for November with consensus estimates compiled by Bloomberg expecting a narrowing of the monthly deficit to -$64bn in November from -$135.2bn the previous month. With lower crude oil prices prompting a lower inflation outlook, market participants increasingly expect the Fed to raise interest rates in the second quarter of 2015 and will look to today’s release of the monthly budget statement ahead of next week FOMC meeting for any further insight.