Commodity prices off on stronger dollar

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Commodities

It won’t have been missed by anyone in the metals markets, but commodity prices have drifted off this past week.

The reason is a resurgent dollar.

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Commodity prices down on stronger dollar

commodities graphic

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It’s a simple but well-worn mantra: a stronger dollar equals weaker commodity prices.

Policy makers at the Federal Reserve advised Wednesday that interest rates would rise from record lows sometime in 2023, updating an earlier forecast of rises not until 2024.

 

The more bullish position on rates boosted the dollar. As a result, the dollar index gained 1.5% over last week. That marked its best result since last September.

In turn, commodities took a hit across the board.

Gold traded at $1,788 an ounce, a decline of about 4% from the start of the week. That marked its worst performance in 15 months.

Meanwhile, Brent crude fell for a second day running towards the end of the week, dropping below $70.40 per barrel overnight before recovering to $72.60 per barrel Friday morning.

Most of the base metals have come off, too. Most of the leading currencies have slipped against the dollar, with the Pound falling below 1.40 and the Euro below 1.20 for the first time in weeks.

Central banks on the move

In the absence of any other driving dynamic, markets are taking direction from the dollar. In turn, the dollar is taking heart from the Fed.

But the Federal Reserve is not alone in bringing forward likely rate rises.

Norway’s central bank is planning to raise rates this September, according to the Financial Times. A second rate rise there is possible as soon as December.

Meanwhile, Canada’s central bank has scaled back its bond buying from April. It is the first to reduce its quantitative easing (QE) stimulus. While no others have made announcements about imminent changes, the trend is developing for less QE and higher rates.

The positive takeaway is central banks are seeing growth as robust enough for monetary policy to gradually return to some sense of normal.

For that, we should all be grateful.

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