The US dollar strengthened as the Federal Reserve remained optimistic about the economy and a September interest rate hike. Federal Reserve officials cited positive employment data after a first-quarter slowdown. The language used in the statement marks an upgrade in the Fed’s position on the labor market. They later added that at this point they only needs to see “some improvement” in jobs as well as inflation on target before rates would be raised. While the Fed built up expectations for a September rate hike, it still did not give a clear indication of its future plans, allowing them to retreat in case market conditions do not favor a rate hike. The Federal Reserve FOMC will skip August, meaning that this is the last meeting before September. U.S. stocks gained as consumer spending and housing reports demonstrated enough growth to offset concerns over falling energy prices. U.S. GDP will be released today with expectations of a 2.6% climb. The Dow Jones Industrial Average added 121.12 points, or 0.69%, to trade at 17751.39. The S&P 500 index added 15.32 points, or 0.73%, to trade at 2108.57. The Nasdaq Composite gained 22.53 points, or 0.44%, to close Wednesday’s trading session at 5111.73.
The Fed’s positive outlook on a rate hike strengthened the dollar as traders prepare for increased borrowing costs. The dollar index, comparing the U.S. dollar against a basket of its peers, has rebounded from Monday’s two-week low of 96.288 and is currently trading at 97.37. The dollar edged up against the euro, bringing the EUR/USD down 0.24% to 1.0952 as it nears a weekly low. The dollar also gained on the Japanese yen, fetching 124.1 yen as it hits a weekly high in early Asian trading.
Crude oil extended gains in early Asian trading on Thursday after U.S. crude and gasoline stockpiles dropped unexpectedly, thus increasing outlook for demand. Analysts were expecting a 184,000 barrel decrease in stockpiles while the official report revealed that stockpiles fell by more than 4.2 million barrels last week. However, gains were capped by the strong dollar and the fact this report does little to change the circumstances that have created the global supply glut. OPEC members continue to produce nearly 3 million barrels per day. Crude oil is currently trading at $48.76 after easing in the last few hours.
U.S. GDP will be released today and should be the focus of attention after the Federal Reserve reiterated its data-dependent position on raising interest rates in September. Eurozone employment data will also be released today. Tomorrow, Eurozone inflation data will be released with the consumer price index (CPI), measuring changes in price across a number of categories.