Dollar Falls Against Euro

U.S. 10-year Treasury bonds rose slightly today,
on expectations that jobs and manufacturing reports to be released this week
will highlight slowing growth in the U.S. economy. Bonds have fallen
dramatically in the last week, as jobs, manufacturing and confidence numbers all
pointed to positive U.S. growth and inflation. However, traders are
speculating that the first round of economic reports out of the U.S. in 2007
will point to a slowdown and higher bond prices. Bonds initially shot
higher last June, when the Fed initiated a rate-pause to combat slowing growth
and moderating inflation. Economic reports at the end of 2006, however,
all had a more positive ring, which led to a bond sell-off to close out the
year. Housing reports should remain one of the key indicators of growth
and inflation in 2007, so bond traders will be focused on any and all housing
reports into the new year.

The dollar fell against the euro, but rose
against the yen in mixed trading today, as traders speculated on two economic
reports to come later this week. The euro has been surging against the
dollar and yen lately, as the ECB looks set to continue raising rates into the
new year on positive-growth and inflationary data out of Europe. The yen
looks weak at the moment, with no real opportunity to raise rates in sight;
Japan has been plagued with weak economic data as of late. The dollar
holds the middle ground at the moment, with traders undecided on whether the Fed
will lift rates by March. Weak economic data hurt the dollar during the
last 2 quarters of 2006, but the most recent reports were surprisingly positive,
boosting the yield, but not so much the dollar. Housing reports look to
remain one of the key focuses of currency and bond traders into 2007.

Crude oil fell about 0.5% today, as continued
warm weather in most of the U.S. kept a lid on any gains. OPEC has called
for international output reductions of nearly 2 million barrels a day to combat
the falling prices, but ample supplies and warm weather continue to push crude
prices lower. Energy use and demand rises during harsh winters, so warm
weather forecasts are keeping supply fears at bay. The planned execution
of Saddam Hussein drove oil prices higher last Friday, but fears of violence and
upheaval in the Middle East could not keep prices up. Natural gas fell
about 0.6% on warm weather in the U.S.

Gold futures rose over 0.5% on speculations that
weakness in the U.S. economy will lead to more diversification away from the
dollar. Gold usually moves inversely to the dollar and with oil; dollar
action dominated today’s gold trading. More and more countries have been
diversifying their currency reserves away from the dollar lately, as economic
weakness continues to pervade the U.S. economy. Politics and U.S. foreign
policy can also be seen as part of the dollar’s problem. Copper fell
nearly 4% in trading today; speculation of U.S. weakness could have led to the

Cocoa prices rose fractionally as supply worries
continue to surround the Ivory Coast, which is entrenched in civil war and is
the world’s largest producer of the beans. Wheat fell nearly 2% as the
grain future continued to trade in a tight range, near multi-year highs.
Soybean futures closed down fractionally.

Economic News

No major U.S. economic news to report at this

John Lee

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