Commodity prices, from oil to base metals, soar with stronger dollar

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No one will have missed it in the metals markets, but commodity prices drifted last week.

The reason is the resurgence of the dollar.

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Commodity prices fall on a stronger dollar

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

Federal Reserve policymakers announced on Wednesday that interest rates would rise from record lows in 2023, updating an earlier forecast of hikes through 2024.

The more bullish position on rates boosted the dollar. As a result, the dollar index gained 1.5% from last week. This is his best result since last September.

In turn, commodities took a hit overall.

Gold was trading at $ 1,788 an ounce, down about 4% since the start of the week. It marked his worst performance in 15 months.

Meanwhile, Brent crude fell for the second day in a row near the end of the week, falling below $ 70.40 a barrel overnight before rising to $ 72.60 a barrel on Friday morning.

Most of the base metals also came off. Most major currencies slipped against the dollar, with the British 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 dynamics, the markets are heading for the dollar. In turn, the dollar takes courage from the Fed.

But the Federal Reserve isn’t alone in announcing likely rate hikes.

The central bank of Norway is considering raising rates in September, according to the Financial Times. A second rate hike is possible there from December.

Meanwhile, Canada’s central bank reduced its bond purchases from April. It is the first to cut its quantitative easing (QE) measures. While no other has made announcements of impending changes, the trend is growing for less QE and higher rates.

The good news is that central banks view growth as robust enough for monetary policy to gradually return to some sense of normal.

For this we should all be grateful.

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