Dollar Hits Record Lows Against Euro

U.S. 10-year Treasury bonds were flat today,
giving up gains through the day to close in the black. An advanced GDP report
came out today below analyst expectations at 1.3%, compared with estimates of
1.8%.  Consumer confidence also fell to monthly lows, and employment costs
rose less than expected, both somewhat negative signs for the U.S. economy.
Bonds usually rise on economic weakness and fall on strength; despite major
weakness in a few of today’s releases, U.S. bond prices managed to basically
stay put. Personal income, spending and construction spending are all released
on Monday in the U.S., so there is some potentially price-moving data in the
near future for bonds.

The euro surged to new records against the yen,
and broke major resistance to hit new highs against the dollar today before
falling back a little. The
U.S. grew at the slowest pace in 4 years last quarter. The GDP data sent the dollar tumbling against the euro
and the yen this morning, but the dollar managed to take back some of those
losses against the euro, and to actually make some gains on the yen. In addition
to employment costs, consumer confidence in the U.S. fell to 7-month lows to
87.1 according to the University of Michigan’s consumer sentiment survey.
Analysts were guessing that the numbers would come even lower, but combined with
the weak GDP numbers, the economic reports out of the U.S. had an overall
negative effect on U.S. sentiment. The British pound also moved back above the
crucial 2$ watermark against the dollar after the weak GDP data, but gave up
gains to close below resistance at the end of the day.

Crude oil futures jumped over 2%, after Saudi
Arabia announced a major terrorist-related arrest. Saudi officials claimed to
have arrested over 170 people who were involved in a plot to attack oil fields.
Futures shot higher on news of a planned terrorist attack, reminiscing crude’s
sensitivity to Iran-related news. During any geopolitical crisis in an
oil-producing country, crude has been moving higher on supply fears. Iran
tension over the summer, recent Iran/UK tension and Nigerian worries have all
recently contributed to significant rallies in the price of crude oil. Natural
gas futures rose over 3% as traders continue to gear up for summer, which
usually has high energy use.

Gold futures rose about 1% on dollar weakness
against the euro. Gold usually trades inversely to the dollar and with oil, and
it was dollar weakness that helped to propel gold higher. Traders bought gold to
protect themselves from future dollar weakness; a soft GDP report sent the
dollar to record lows against the euro. Copper futures rose about 0.7%, also on
dollar weakness.

Grains traded mixed today. Soybeans rose about
0.6%, corn fell around 0.5% and wheat fell 1.3%.


The U.S. economy
grew at 1.3% in the first quarter, versus expectations of 1.8%.

Consumer confidence fell to the lowest levels in
7 months.

John Lee

Associate Editor

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