Dollar Plummets Against Euro

U.S. 10-year Treasuries remained near 9-month highs today, as
investors speculated that two housing reports coming this week will continue to
show weakness in the housing market, which should ultimately send bond prices
higher. Bonds shot higher in June, when the Fed initiated a rate-pause on
continuing signs of a slowing economy and weakening inflation. Investors
fled the danger of the short-term market, buying long-term bonds which sent
prices soaring. Conflicting reports and announcements from Fed members
have kept prices near 9-month highs, as investors continue to speculate the
future of interest rates. The two housing reports this week could propel
bonds to new highs, or if a positive report is released, could force prices to
ease back momentarily.

The euro rose to its highest levels against the dollar in
nearly 2 years, and reached a new record against the yen, on speculation that
the growing European economy will be forced to raise rates at a faster rate than
the U.S. and Japan. Interest rates and inflationary speculation has
dominated the currency market, as investors look to buy currencies backed by
hot, inflationary economies. The BoJ has wavered in its public stance on
raising rates, while the US sees no chance of a hike this year, and is facing
rate cuts during the early part of 2007. The ECB, on the other hand, has
remained publicly hawkish, and many investors assume that the ECB will be forced
to raise rates before the year is out. The dollar rose moderately against
the yen.

Crude oil rose 1% to close at $60 a barrel today, on cold
weather forecasts for the US, and speculation that the major OPEC cuts will go
into effect next month. Crude has fallen steadily since reaching record
highs in July, and is down nearly 25% from those levels. OPEC has called
for an international output reduction from its members, but has yet to produce
any significant effect on the price of oil. Cold weather in the US almost
always equates to more energy use, and therefore higher demand across the
energies board. Natural gas rose nearly 4% in trading today, as the U.S.
braces for a cold snap across its northern half.

Gold futures rose to a nearly 3-month high today, as the
dollar fell against the euro. Because the dollar is widely used as an
investment around the world, a steep drop in price in the dollar will usually
equate to a move higher in gold, as investors turn to the metal as a safe-haven.
Silver rose 0.5% and copper fell nearly 1% on continued weakening demand from

Grains and softs rose across the board. Corn rose 0.5%
to 10-year highs, soybeans roe 0.5% and cotton rose the most in a month on a
weak dollar.

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John Patrick Lee