Dollar Holds Euro, Bonds Creep Higher

Bonds rose moderately today, giving up some gains from early in the day to close only slightly higher. Retail sales plunged unexpectedly the fastest in 2 years last month, prompting traders to buy bonds ahead of speculated economic weakness in the U.S. The subprime mortgage fallout has been weighing heavily on bond traders, pushing prices higher on fears of U.S. slowing growth. Bonds typically fall on positive news and rise on weakness, so today could be seen as a bad sign for the U.S. economy, in relation to bond prices.

The yen bounced moderately against the dollar and the euro today, and the euro also stalled against the dollar. The big news this morning was a letter from Iran sent to Japanese refineries, requesting that Japan begin using yen to buy oil from the Middle Eastern company. Iran is worried about more potential sanctions to come from the West, which could theoretically freeze Iran's dollar assets. The dollar bounced against the Canadian dollar despite a severely weak retail sales report. The British pound rose over the dollar.

Crude oil futures rose nearly 2% today, after a pipeline shutdown near the North Sea prompted supply worries. Summer is usually a period of high oil demand and rising prices, so any potential disruptions could have a major effect on prices. Natural gas futures rose 2.5% on fears that a Midwest heat wave could send prices soaring.

Gold futures fell fractionally today, as the euro rally stalled against the dollar. Gold normally trades inversely to the dollar and with oil; despite oil's gains, gold fell on dollar strength. Gold has also been trading inversely with rising interest rates, as higher rates make the safety metal a less attractive investment.

Grains rose today. Soybeans gained 0.9% and corn rose just over 1%.

The Dow closed above the 13,900 mark for the first time and the S&P 500 reached the highest intraday level since 2000. For the complete stock market recap, click here.

John Lee
Associate Editor
johnl@tradingmarkets.com

For more on today's stock market action, check out today's Stock Market Recap.