U.S. Dollar Heads Lower on Growth Worries

U.S. 10-year Treasury bonds were fractionally
lower today, but closed up on the week, as global equities weakness continue to
plague international markets, and U.S. subprime mortgage concerns run rampant. 
Bonds shot higher this week as global equities markets experienced another
dramatic selloff this week, and traders sought bonds for long-term safety. 
The U.S. subprime mortgage market continues to weaken, after two major subprime
lenders recently reported that they would not be able to pay off creditors. 
Bonds usually fall on strength, and rise on economic weakness, so traders are
viewing global equity insecurity and subprime weakness as a major negative for
the economy.

The dollar fell against the yen and the euro
today, on speculation that economic growth is weak in the U.S., and subprime
troubles will spread to other areas of the U.S. economy.  The yen has been
a major focus lately in the currency market, moving inversely with global
equities markets as the effects of the carry trade unfold.  Traders borrow
yen to invest in more profitable assets; when there is major risk in the
markets, investors buy back the yen and cover their risky positions, thereby
sending the yen higher.  The international currency market has favored
currencies backed by inflationary, positive-growth economies, which Europe has
proven itself to be.  Today’s dollar action points to investor insecurity
as to the fate of the dollar; a string of positive reports will be necessary to
send rates higher.  The yen, although it has bounced back slightly from
recent lows, will need major help from the Japanese economy in order to
necessitate a rate-hike.

Crude oil fell about 0.8% to 6-week lows, on
reduced worries that Iran will remove its oil supplies from the international
market.  With the UN actively imposing sanctions onto Iran to deter it from
its nuclear program, many investors feel that Iran’s oil supply could be removed
if the situation escalates further.  Crude had been trading near 60 for
some weeks before breaking support on Monday.  Crude has since fallen
nearly $3, with OPEC signaling that more output reductions are not necessary at
this time.  Natural gas fell about 0.5% on continued warm weather

Gold shot higher today 0.7% as the dollar fell on
the international market.  Gold usually moves inversely to the dollar and
with oil, and it was dollar action that dominated today’s trading. 
However, lately gold has been trading in-line with the equities market, and
could be seen as a general proxy of market health.  Copper rose about 0.7%
on continued signs that China’s demand for the metal is increasing.

Grains rose across the board today.  Corn
rose about 0.4%, wheat gained 1.2% and soybeans rose about 0.3%.


Consumer prices
rose last month, pushing inflation levels higher.

Industrial production rose the most last month
since 2005.

John Lee

Associate Editor