Natural gas benefits from weakener dollar ahead of FOMC

Natural Gas rises as the US Dollar weakens ahead of the June FOMC meeting. Expectations are for the US Fed to leave interest rates unchanged at the current policy meeting after recent tamer-than-expected inflation figures.

The technical picture is still long-term bearish, although price action throughout most of 2023 has been broadly sideways. Natural Gas price is trading roughly 1% higher on Wednesday as the US Dollar deepens its slide ahead of the key FOMC decision.

Given Natural Gas is primarily priced and traded in US Dollars, a weakening of the currency means more Dollars are required to buy the same unit of Natural Gas. Lower-than-expected US inflation figures have solidified market expectations that the US Fed (Fed) will not hike interest rates in June. Since higher rates tend to boost the US Dollar (USD) as they make the US a more attractive place for investors to park capital – a decision not to hike puts pressure on the dollar.

The US Producer Price Index for May, which measures ‘factory gate’ inflation, came out lower than economists had foreseen on Wednesday, with the MoM figure showing a 0.3% slide vs. the 0.1% dip expected, and YoY a slower 1.1% rise vs. the 1.5% predicted.

Supply concerns – especially in Europe – have arisen due to forecasts of hotter weather and supply outages at key fields in Norway despite storage figures being unusually high for this time of year.

One Natural Gas trader is quoted as saying, “Everyone knows in the back of their heads that as soon as this gas starts being consumed and if the cargoes keep going to Asia, we are back to the situation two years ago, when prices started surging.