Dollar Struggles on Tepid Inflation, Tillerson Firing

The U.S. Dollar fell against a basket of major currencies on Tuesday mostly in reaction to U.S. consumer inflation data which came out in line with expectations.  The news strongly suggests the U.S. Federal Reserve will remain on track to raise interest rates at a gradual pace, or as many as three times this year. With a stronger-than-expected CPI number, traders could have built a case for up to four rate hikes later this year.

March U.S. Dollar Index futures settled at 89.643, down 0.224 or -0.25%.

The Labor Department said on Tuesday the U.S. consumer price index rose 0.2 percent last month after jumping 0.5 percent in January. Excluding the volatile food and energy components, the CPI gained 0.2 percent after accelerating 0.3 percent in January.

The dollar also lost ground after U.S. President Donald Trump fired Secretary of State Rex Tillerson and replaced him with Central Intelligence Agency Director Mike Pompeo, marking the biggest shakeup of the administration’s Cabinet.

After the CPI data was released, Fed funds futures showed a lower chance of a fourth rate hike this year. Going into next week’s U.S. Federal Reserve meeting, the Fed funds futures indicator shows an 86-percent chance of a rate hike.

Gold

Gold futures settled higher on Tuesday after mounting a strong comeback, following a weaker trade earlier in the session. Gold turned positive as the dollar lost ground following the release of tepid U.S. consumer inflation data, and on the news that U.S. President Donald Trump had replaced Secretary of State Rex Tillerson.

April Comex Gold futures settled at $1327.10, up $6.30 or +0.48%.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent Crude Oil futures could not take advantage of the weaker dollar, falling sharply instead as buyer succumbed to reports of rapidly increasing U.S. production.

May WTI Crude Oil futures settled at $60.75, down $0.58 or -0.95% and June Brent Crude Oil finished the session at $64.52, down $0.27 or -0.42%.

Traders continued to react to the report from the U.S. Energy Information Administration on Monday which said output from the shale basin would hit a new record high in April.

Most notably, the premium of the front-month Brent and WTI futures contract to those for delivery further ahead has shrunk in the last two weeks in a sign that traders and investors are less optimistic about the likely balance between global supply and demand this year.

Natural Gas

Natural Gas futures inched slightly higher on Tuesday in reaction to a small uptick in demand and the lingering cold weather in key demand areas.

May Natural Gas futures settled at $2.809, up $0.009 or +0.32%.