Dollar Surges Against Euro, Oil Continues to Rise

U.S. 10-year Treasury bonds gave up the biggest
gains in 3 months, after a report showed that inflation stabilized through
November. Prices opened the day well above yesterday’s close, but traders
sold bonds through the day, closing prices out only slightly higher than
yesterday. Initially investors bet that the report lent weight to
impending rate-cuts, but by the end of the day, prices were basically back where
they were yesterday. Interest rate futures now show a less than 20% chance
of a rate cut by March, compared to plus-30% chance of rate cuts only two weeks
ago. Rates initially shot higher in June, when the Fed initiated a
rate-pause to deal with slowing growth and moderating inflation in the U.S.
Today’s report brings neutral data to the table, as inflationary pressures
remained the same through the month of November.

The dollar continued to rally against the euro
today, moving to a 3-week high, after a report showed that foreign investors are
upping bets on U.S. securities, driving the strength of the dollar higher.
The dollar also rose moderately against the yen, but the major action surrounded
the EURUSD, as investors bet on the dollar. The attractiveness of the U.S.
economy can be measured in the amount of money invested by foreigners, and
today’s move up against the euro marks a strong step away from the dollar lows
from about two weeks ago. Global currency markets favor currencies backed
by hot, inflationary economies, and the U.S.’s recent economic reports all point
away from common sentiment that the U.S. economy is weak. Jobs reports and
retail sales this week have both pointed to growth and positive activity, and
the dollar has reacted accordingly on the international market.

Crude oil futures rose just over 1% to close at
$63.32, as the ramifications of OPEC’s most recent cuts are felt. In
addition to the 1.2 million barrels a day previously agreed upon by OPEC
members, a new cut of 500,000 barrels a day will be enacted on February 1.
The reductions and warnings from OPEC at first had little effect on the falling
price of oil, which is down around 25% from its record highs in July.
However, the second string of cuts seems to have had a more profound effect on
the price of crude, which has rallied for the last 3 trading sessions.
Natural gas fell 2% on continued warm weather across the U.S., in addition to
ample gas supplies.

Gold fell nearly 2% as the dollar surged on the
international market. Gold usually moves with oil and against the dollar,
and it was dollar action that won control over gold’s movement. Gold is
commonly used as a hedge against inflation and rising energy prices; strength in
the dollar today led to gold selling, as investors dumped the safe-haven
commodity in favor of the dollar. Gold is down 20% from its May highs, but
is still well-up on the year. Copper fell 1.3% to its lowest prices in
nearly 5 months, after a report showed that inventories continued to rise in the
U.S. over the past month.

Wheat prices fell 0.3% on fears that near-record
prices are hurting demand for the grain. Both corn and soybeans fell
nearly 0.5% on continued favorable farming weather in South America, which will
boost global supplies in the coming year.

Economic News

U.S. consumer prices were basically unchanged in
the month of November.

Foreign purchases of U.S. securities rose in

John Lee

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