Dollar Nearly Breaks Record Lows

U.S. 10-year Treasury bond prices rose higher
today, as traders increased bets that the Fed would be forced to cut rates this
year. After reaching 2-month lows last week on hawkish Fed minutes, bond
prices have shot up this week on weaker than expected economic reports.
Yesterday, an uninspiring report showed that consumer prices barely rose in
March, forcing prices higher; today, a weak mortgage application number led
traders to buy even more bonds. Bonds typically fall on economic strength
and rise on weakness, so traders are taking this week’s reports as a bad sign of
things to come for the U.S. economy. Interest rate futures show about a
30% chance that the Fed will cut rates by August.

The dollar fell to within a fraction of record
lows against the euro before getting back some early losses, and also dropped
against the yen. A mortgage application report today came in soft,
prompting fears that the U.S. economy is slowing down, and that the Fed will be
forced to raise rates sometime this year. The currency market favors
positive-growth, inflationary economies with a pressing need to raise rates.
Europe has proven itself with consistent high-growth numbers, while both Japan
and the U.S. seem to be struggling to produce a string of consistently positive

Crude oil fell about 0.5% today, after an Energy
Department report showed that refineries have increased gasoline output to
prepare for increased summer demand. Refineries usually gear up production
during this time of year, ahead of summer, which is known for higher energy
demands. Natural gas futures rose about 1% as traders speculated that
tomorrow’s natural gas inventory report will show a decline in gas reserves.

Gold rose fractionally today, trading near
11-month highs on a significantly weakened dollar. Gold usually trades
inversely to the dollar and with oil; today’s dollar weakness led to gold
buying, as traders sought safety in the face of long-term dollar weakness
speculations. Copper futures fell over 1% after a report showed rosy
copper reserve levels.

Grains traded mixed today. Soybeans fell
over 1%, wheat fell about 0.3% and corn rose 3%.


U.S. mortgage
applications fell last month.

John Lee

Associate Editor