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Forex outlook:
The yen rose on Tuesday as growing worries about a deterioration in U.S. credit markets pushed stock prices lower and prompted traders to unwind risky trades financed with the Japanese currency. The Dollar is trading around the levels of 1.3675 against the Euro ,around the levels of 118.45 against the Yen and around the levels of 2.0285 against the sterling.
Traders said the yen was inversely tracking the fortunes of stock prices, which fell after mortgage lender American Home Mortgage Investment Corp. said it could not fund home loans and may have to liquidate assets. "The forex market is tracking the stock market step by step," said Brian Taylor, a senior currency trader at M&T Bank in Buffalo, New York. "Every time stocks turn lower, it's a sign for investors to buy yen."
The Euro was nearly flat at $1.3687 after trading as high as $1.3727. Declines in the dollar versus the euro were limited by data showing U.S. consumer confidence in July rose to a near-six-year high. "This confidence number is considerably better than expected and the highest we have seen in a while," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "We expect the dollar to break below $1.37 against the Euro, particularly if the Dow continues to maintain its gains."
Markets ignored a softer-than-expected U.S. core inflation measure for June and a survey showing slower business activity in the U.S. Midwest. The core personal consumption expenditure index, the inflation gauge most closely watched by Federal Reserve policy-makers, was up 0.1 percent last month. Markets were expecting core PCE to rise 0.2 percent. "Core PCE up 0.1 percent month over month should be reassuring to the Fed and the other indicators are as expected with personal income a little bit lower," said Camilla Sutton, currency strategist with Scotia Capital in Toronto.
Futures still suggest the Fed will trim overnight lending rates once by year-end and a second time by mid-2008 as inflation pressures subside. More U.S. data is slated for Wednesday, including a private reading on employment, pending home sales, and an index on manufacturing activity.
Gold: Gold rose in New York, capping the first monthly gain since April, on speculation the dollar's decline against the Euro will boost the appeal of the precious metal as an alternative investment. Gold generally moves in the opposite direction of the U.S. currency. The metal gained 4.4 percent this month as the dollar dropped 1.1 percent against the Euro. ``The dollar is weak and remains so,'' said Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co. ``Gold is likely to show strength as the dollar weakens.'' Gold also gained after crude oil approached a record high. Oil reached $78.27 a barrel on speculation that demand will outpace supplies. The price reached a record $78.40 on July 14, 2006. Some investors buy gold when energy costs climb to hedge against inflation.
Crude Oil: Crude oil rose to a record close of $78.21 a barrel in New York on speculation demand will outpace supply as refiners increase fuel production. Bets on rising prices by hedge funds and other speculators rose to a record earlier this month, according to U.S. Commodity Futures Trading Commission data. Global demand will climb 1.7 percent in 2008, showing no sign of slowing because of high prices, a Deutsche Bank AG report showed. A government report today may show U.S. oil supplies fell for a fourth week. There's significant growth in global energy demand and production isn't keeping up, Prices have to rise because of this imbalance. This can push the prices higher and higher. Oil in New York rose to a record last year on concern fighting in Lebanon between Israel and Islamic militia Hezbollah would spread through the Middle East. A U.S. pullout from Iraq may be the event that pushes oil to $100 a barrel this year, according to Boone Pickens, the Dallas hedge fund manager who has joined Forbes Magazine's list of billionaires because of his bullish bets on energy prices.
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