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Forex outlook:
The dollar tumbled to a 26-year low against sterling and declined across the board on Monday as lingering worries about the U.S. housing sector reinforced views that U.S. interest rates would remain steady while borrowing costs rise overseas.
The dollar also fell to within half a cent of a record low against the euro, extending Friday's heavy losses after soft reports on U.S. consumer price inflation and personal income and spending. "There's very little on tap in terms of economic data and fundamentals that could reverse the trend for dollar weakness at this point," said Gregory Salvaggio, vice president for trading at Tempus Consulting in Washington. "The market is just wary of holding dollars as we start the week and I wouldn't be surprised to see euro/dollar testing new highs."
The Bank of England is expected to raise interest rates on Thursday, while the European Central Bank is also expected to tighten monetary policy in coming months, reducing the relative allure of the dollar at a time when the Federal Reserve is expected to keep U.S. interest rates on hold.
The Euro was almost 0.7 percent higher at 1.3635 in early afternoon New York trade, in sight of a record high just above $1.3680 hit in April. The dollar was down 0.7 percent at 122.17 yen .
Sterling hit a 26-year high versus the dollar at $2.0174 ahead of the Bank of England's policy meeting on Thursday, when the central bank is expected to raise rates by a quarter percentage point to 5.75 percent - half a percentage point higher than U.S. borrowing costs.
Gold: The precious metal raised as the high crude oil prices creates inflation pressure and the dollar dropped vs. the Euro of the doll 659.4$. ``Some of the support for the dollar has eroded and that's helping gold,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``The Fed is going to make no moves on interest rates and the ECB is still talking tough.'' Five of the past six bear markets for the U.S. currency led to a higher gold price. Before this year, gold has more than doubled in price in six straight annual gains. The dollar index has dropped about 24 percent during that time.
Crude Oil: the black gold jumped above 71$ a barrel after an announcement made by U.S president George Bush in a combined press conference with Vladimir Putin on the intention to join forces in order to prevent Iran from reaching atomic ability. U.S. crude was also supported by expectations for only modest product inventory gains and a crude oil draw down in this week's government report. "Intraday volatility and light volume, plus there are mixed expectations out there about what the inventory data will be," said Jason Schenker, economist at Wachovia Bank. "We're forecasting a million barrel draw, but I've seen forecasts from 2.5 million up to 2 million down." The IEA has called on OPEC to increase its output as soon as possible and Mandil said global demand that traditionally rises in the third and fourth quarters may be stronger this year because of growing demand from developing countries.Iranian Oil Minister Kazem Vaziri-Hamaneh said Monday the current price of crude was "appropriate" and there was no reason for OPEC to adjust output because there was no shortage of crude in the market.
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