Dollar Continues To Slide

U.S. 10-year Treasury bonds rose to its highest levels since
January, after a Chicago economic group reported an unexpected drop in its
business barometer. Estimates forecast the index to come in at 54.4, but
the actual numbers were 49.9, the lowest reading since April 2003. The
Chicago report is used to gauge probabilities of a Fed hike, and the numbers led
to speculation that the Fed is on the road to lower rates soon. The last
time the Chicago report was issued under 50 preceded the Fed’s last round of
rate cuts by about 5 months. The ISM report due out tomorrow should shed
more light on the inflationary situation, but it seems unlikely that any
positive news will make it out, given the slew of negative reports coming out
about the U.S. economy.

The euro continued to trade higher against the dollar after a
negative Chicago economics report was released today, in addition to a jobs
report highlighting more unemployment across the U.S. The global currency
market has been dominated by interest rate and inflationary news, as investors
seek to buy into currencies backed by growing, hot economies. Europe has
reinforced its hawkish stance, leading investors to beat heavily that the ECB
will lift rates before the year is out. Japan and the U.S., on the other
hand, see little chance of rate hikes this year, and the U.S. will be facing
serious pressure to lower rates unless future reports come out more positively.

Crude oil rose nearly 1% to close at 63$ a barrel today, as
cold weather settles in across the U.S., and inventory reports showed that the
U.S.’s fuel supplies fell last week. Energy prices usually rise across the
board during cold weather, which necessitates more use and higher demand.
Crude has fallen steadily from record July highs, and OPEC has even called for
international output reductions to curb the losses, but the cuts have been
inefficient. Natural gas fell nearly 4% on forecasts that the cold weather
front will not stick, and warmer weather is on its way again.

Gold rose 1.7% to a 3-month high, as the dollar fell against
the euro in the global market. Gold is commonly used as a hedge against
weakness in the dollar, as investors look for the long-term safety of the
commodities metal. Gold is down 20% from May highs, but still well up on
the year. Gold’s move higher comes as no surprise to investors, given the
dollar’s recent move lower. Copper rose 1.3% as the dollar slump made the
metal cheaper for investors with other currencies.

Wheat rose 1.6%, the most this week, after a report was
released that showed demand for U.S. supplies could be rising. Corn rose
1.5% and soybeans rose nearly 0.5%.

Economic News

Chicago Manufacturing Index fell to 49.9, the lowest levels in
over 3 years.

Jobless claims in the U.S. rose last week to the highest in
more than a year.

John Patrick Lee

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