The U.S. Dollar’s Softening Lifts Commodities Prices

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The dollar dropped this week and stocks pulled back following comments early this week form President Trump that reversed earlier optimism over U.S.-China trade talks later this week.

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According to the Financial Times, the index tracking the U.S. dollar was down 0.3% at 95.606, its lowest since early August. The drop cut its year-to-date gain to just under 4% and prompted a modest rally in commodities, which have been depressed by a persistently strengthening dollar.

This graph from the Financial Times shows the relatively benign bounce after a marked period of strengthening:

Source: Thomson Reuters Datastream (via Financial Times)

Brent oil settled at $72.21 a barrel, up 0.5%, after some volatility while U.S. West Texas Intermediate was 0.8% higher at $66.46. Gold was up $5 at $1,189 an ounce, after hitting an 19-month intraday low of $1,160 last week. Commodities generally trade inversely to the dollar; if the dollar weakens, as it has this week, commodities tend to rise.

The president poured cold water on the prospects for a deal from the upcoming talks, but that may have been a calculated step to apply pressure to the other side to come to the table willing to compromise.

Talk of a meeting between Trump and Chinese President Xi Jinping in November is, at this stage, highly speculative and will depend on compromises being made on both sides — something Trump appears in no mood to make. He seems to feel the U.S. holds all the cards, and indeed from a trade balance point of view, an escalation of sanctions would likely hurt China more significantly than the U.S.

There is likely to be more currency-influencing news this week, with the minutes of the latest Fed meeting due to be released on Wednesday and opening speeches at Jackson Hole due later this week.

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In China, the Shanghai stock market is down about 20% this year, reflecting worries the economy was slowing before the tariffs were applied — a situation that is deteriorating as the weeks go by and the rhetoric is ramped up.

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