Dollar Weakens on Federal Reserve’s Interest Rate Talk and Oil Prices’ Recovery

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Source: Jeff Yoders/MetalMier

A weaker dollar is bullish news for metal prices. This week, the dollar has further devalued against other currencies, mainly because of two factors:

Fed Signals Slower Pace for Interest-Rate Increases

(Dollar chart)

On Wednesday the Federal Reserve suggested it would likely only raise interest rates twice this year, down from earlier projections of four increases. The prospect of lower interest rates is making yield-seeking investors lose interest in the currency.

Oil Prices Retake $40 Per Barrel Mark

(oil chart)

Oil prices are making a nice comeback (at least a short-term comeback) which made the currencies of oil-exporting countries such as Russia and Canada gain against the US dollar. Therefore, higher oil prices contributed to a weaker dollar this month.

Also since Wednesday, oil prices increased more after OPEC officials said Saudi Arabia, Kuwait and their allies would limit their oil output even if Iran doesn’t follow suit, a change in tone that might lead to curbs on crude production next month.

What This Means For Metal Buyers

It would be hard to imagine a bull market in metals without a bear dollar market. We’ve seen the dollar experience some turbulence before, only to then keep climbing. We’ll have to pay close attention to figure out if this dollar weakness is here to stay or the dollar is just taking a break before moving up… again.

 

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