U.S. dollar declines as gold rises and investors turn to riskier currencies

Despite a recent high, the dollar faltered as equities, commodities and riskier currencies turned stronger on Tuesday. However, the dollar index was broadly flat today at 107.1 after shedding 0.65 percent.

Boosted by the interest rate hikes by the U.S. Federal Reserve to tame inflation, the dollar had previously topped the chart as it rallied against other major currencies this year. It declined only a day after new COVID-19 curbs were placed in China, spreading global worries about the upcoming economic outlook.

The sterling was 0.6 percent higher at $1.1885, while the euro rose 0.5 percent against the dollar to $1.02965, ending its three-losing streak.

The sterling continued its hike for a second day on Wednesday with signs of contraction remaining as the flash purchasing manager index (PMI) data showed sluggish economic activity in Britain.

Meanwhile, the Australian dollar saw a 0.6 percent increase. Meanwhile, the neighboring New Zealand dollar rose 0.9 percent as the New Zealand central bank plans to deliver its record-breaking rate of a 75 basis points hike to 4.25 percent this week, the highest among the G10 economy as the country attempts to tame inflation.

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The cryptocurrency market also saw gains, with bitcoin rising 2.5 percent to $16,161 on Tuesday. Previously, the digital currency saw a flop to $15,479, its lowest low in two straight years.

Despite the slump, Federal Reserve Bank of Cleveland President Loretta Mester emphasized that the battle against inflation would remain a critical priority.

"The Fed’s hawkish outlook is keeping a floor under the dollar but expectations of a slower pace of tightening is capping rallies," said a senior market analyst at Convera in Washington, Joe Manimbo.

Commodity prices fluctuate

On the other side of the market, the gold price ended its four-day slide, surging above $1,740 per ounce. However, as the winter worsens and a potential rail strike looms after the largest U.S. rail union's members rejected a tentative contract in September, NGAS prices declined after a 7.5 percent rise in the previous session.

Additionally, the restart of the Freeport LNG export facility will likely be postponed until mid-December after an explosion in June. As a result, more gas is anticipated to be stashed for domestic use. According to recent data from Energy Information Administration, U.S. utilities just added 64 Bcf of gas to storage last week, totaling the stockpiles to an almost 3.651 Tcf five-year average.

Cotton futures are also facing the same storm as it remains close to a nearly 22-month low of last month. This is only roughly half of their May peak. Yet, the U.S. Department of Agriculture forecasted a surplus in domestic production and lower global demand in a recent report.

The Southwest area saw a decline, yet other regions contributed to a 1.5 percent increase in U.S. cotton production, adding approximately 14.0 million bales. Global cotton consumption is anticipated to be drastically reduced by up to 650,000 bales lower. Mill usage in Pakistan and Bangladesh is also expected to be reduced by 300,000 bales.

Despite all the predictions and tendencies, investors would remain cautious, waiting for the result of the Federal Reserve meeting scheduled today. The minutes of this meeting should provide insights into future U.S. interest rates.