US Dollar Strengthens as Bonds Fall

U.S.10-year Treasury bond prices fell today, on
expectations that Fed Chairman Bernanke’s speech later this week will lower
expectations for a rate-cut this year. Bonds shot up in June after the Fed
ended its rate-tightening cycle on slowing growth and moderating inflation.
Many investors speculated that the Fed would be forced to cut rates by March to
deal with a slowing economy. However, a string of positive, turn-around
reports have pushed bond prices lower since early December. Bond prices
usually rise on economic weakness and fall on strength, so traders are viewing
these reports as a positive factor for the U.S. economy. After a number of
hawkish comments from Fed Presidents last week, most investors expect Bernanke’s
thoughts to echo hawkish sentiment, with a sharp eye out to keep a lid on

The yen rose off of record lows against the euro,
while the dollar pushed higher against both the euro and the yen. The G-7
committee this weekend warned against one-sided trades against the yen, which
helped to push the yen off record lows against the European currency. The
dollar surged on expectations of hawkish comments from Bernanke later in the
week. The international currency market favors currencies backed by
inflationary, positive-growth economy, which puts Europe in the best light.
Japan has struggled to produce any consistently positive numbers, which has led
to record lows and political warnings by the G-7 currency against major yen
weakness. The U.S. economy slumped during the second half of 2006, which
led to yearly lows against the euro, but recent reports have helped to boost the

Crude oil futures fell over 3%, after Saudi
Arabia told Asian refineries to expect a larger shipment of oil next month than
what was previously expected. The delivery jump hints at
higher-than-expected levels of Saudi reserves, which sent prices lower.
OPEC also signaled that no additional rate cuts are on the table, which helped
to push prices lower. Crude fell more than 30% from record July highs,
before bouncing back in the last few weeks on cold weather and greater demand
from the U.S. The U.S. announced plans to double its strategic oil reserve
over the next decade, which would take a large amount of crude off the market
immediately. Natural gas futures fell around 7% on high supply levels and
forecasts of warm weather in the U.S.

Gold futures fell around 0.7% on dollar strength
today. Gold usually trades inversely to the dollar and with oil, which is
exactly what happened during today’s session. Strength in the dollar led
to gold selling, as traders favored the U.S. currency over the metal.
Declining crude prices also might have factored into gold weakness, as traders
sold gold in-line with falling oil prices. Traders use gold as a
safe-haven in the face of dollar weakness and rising oil prices. Copper
prices fell nearly 2% on high supply levels around the world.

Grain prices fell across the board. Corn
fell nearly 0.5%. Soybeans fell 0.4% on favorable weather conditions in
South America, and wheat fell over 1% on good farming weather in the U.S.


No major economic
news to report for the U.S. today.

John Lee

Associate Editor