Chance of December Fed Rate Hike Jumps to Over 80 Percent

The U.S. Dollar weakened against a basket of currencies on Wednesday as investors positioned themselves ahead of Friday’s U.S. Non-Farm Payrolls report, while reacting to fresh economic data and a speech later in the session by Fed Chair Janet Yellen.

December U.S. Dollar Index futures finished the session at 93.284, down -0.130 or -0.14%.

Wednesday’s weakness did nothing to diminish the strong upside bias that has developed recently. Improving U.S. economic data along with the prospect of U.S. tax reform and rising expectations that the Federal Reserve will raise rates a third time in December have boosted the Greenback in recent weeks.

However, bullish investors have been tentative this week because of uncertainty over Hurricanes Harvey and Irma’s impact on payrolls. Investors are afraid that the payrolls report will be skewed and that they may not get a true reading of the labor market in September.

U.S. Economic News

According to ADP, U.S. private employers added 135,000 jobs in September, exceeding economists’ expectations even as the hurricanes “significantly impacted smaller retailers.” Traders were looking for a gain of 131,000. Last month’s report was revised down to 228,000.

The ISM Non-Manufacturing Index rose to its highest level since August 2005 in September and the prices paid index reached its highest level since February 2012. The ISM Services Index came in at 59.8, beating the estimate of 55.5.

Late in the session, Fed Chair Janet Yellen did not comment on the economy or monetary policy in prepared remarks at a community banking conference on Wednesday.

The market action late Wednesday seemed to indicate that investors have priced in the news that U.S. President Trump will appoint a less hawkish head of the Federal Reserve than previously expected.

At the end of the session, data showed that interest rate futures traders were pricing in an 83 percent likelihood of a December rate increase, up from 78 percent on Tuesday, according to the CME Group’s FedWatch Tool.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil closed lower on Wednesday after a surprising jump in U.S. crude exports to a record 2 million barrels per day. This news raised concerns over the global supply glut.

According to the U.S. Energy Information Administration, U.S. crude stockpiles fell sharply the week-ending September 29, but crude exports rose to 1.98 million barrels per day.

The EIA said U.S. crude inventories fell 6 million barrels, a much bigger draw than the decrease of 756,000 barrels analysts had expected.

In other news, OPEC Secretary-General Mohammed Barkindo said he was confident his organization could restore sustainable stability to markets. Russian President Vladimir Putin said he did not exclude an extension of output cuts until the end of 2018.

Gold

Oversold conditions and a weaker U.S. Dollar helped boost gold futures from near its 7-week low on Wednesday. Gains were limited, however, by another rise in U.S. stock markets. Traders also said they expect prices to consolidate due to below average volume blamed on the Chinese holiday period.