Commodity Slide Boosts Dollar

Commodity-positioning will remain very important in the near term with the dollar and yen set to benefit if there is any disorderly further unwinding of positions on a drop in oil and metals prices.

US consumer prices rose by a further 0.8% for July after a 1.0% increase the previous month with the annual rate at a 17-year high of 5.6%. The core increase was also higher than expected at 0.3% for the second successive month which will maintain inflation fears with the annual increase at 2.5% compared with an unofficial target ceiling of around 2.0%.

The market impact was limited as there was also a focus on the latest jobless claims data which remained at elevated levels. Initial claims were 450,000 in the latest week while continuing claims rose to the highest level for four years. The dollar initially weakened following the data with growth concerns persisting. The Euro was unable to break above 1.4950 and dipped sharply to lows below 1.48 in New York as crude prices dipped sharply with global growth fears also still a key dollar support factor.

The US currency retained a firm tone in Asia on Friday with a peak close to 1.47 in European trading. Commodity prices continued to decline with gold falling to below the US$800 per ounce level for the first time in 2008.

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