Dollar Falls Despite Positive Data

U.S. 10-year Treasury bonds fell further today, as traders
increased bets that the Fed would not be cutting rates any time soon. The ISM
index, which measures service growth, increased to 59.7 this month, at the
fastest pace in more than a year. Since the Fed announcement at the beginning of
May, bonds have been falling steadily on a stream of reports indicating that the
U.S. economy is beginning to turn itself around, and that growth is also picking
up. Interest rate futures show only a 12% chance of a rate cut this year.

Despite positive U.S economic numbers, the dollar fell against
the euros to 2-week lows, after Fed Chairman Bernanke said that the housing
slowdown will continue to hamper growth “somewhat longer” than expected. Also,
the British pound advanced versus the dollar on speculation that the BOE will
raise interest rates next week. The yen continues to slide against the dollar
after a runup early US session. The U.S. dollar fell even further against the
Canadian dollar today.

Crude oil futures fell about 1% today, on speculation that
tomorrow’s energy inventory report will show that U.S. refineries increased fuel
production last week. Summer is typically a period of high energy demand and
rising prices. Refineries usually shut down in the months before summer, to
clean and repair ahead of the rush; traders bet today that with refineries back
in gear, there will be more gasoline supplies in reserve. Natural gas futures
fell about 1.3%, on speculation that large reserves will be able to handle the
coming spike in demand.

Gold futures fell fractionally on speculation that central
banks will increase their gold sales. Earlier last week, traders bet the
opposite, that banks would stop selling gold until around September. Gold
usually trades inversely to the dollar and with oil; today, neither factor
seemed to dominate gold trading. Copper futures fell about 0.8% on speculation
that U.S. demand from the manufacturing sector will lessen.

Grain futures traded mixed today. Corn fell 1%, wheat rose
about 1.3% and soybeans gained 1.5%.


The ISM index of
non-manufacturing businesses rose to 59.7, the highest rate of growth in
over a year.

John Lee

Associate Editor