Dollar Gains as Commodities Fall

Overall: Sentiment has apparently turned heavily towards the dollar's favor, as the world seems to be turning to the greenback and away from commodities. The Reuters/Jefferies CRB Index fell to a four-month low, as projections of slower economic growth led traders to speculate that demand for raw materials will wane. Prices for copper, platinum and palladium declined as the dollar strengthened on Friday.

The euro fell by the most in eight years against the dollar. Traders are pricing in less chance of a rate increase from the European Central Bank after ECB President Trichet expressed concerns yesterday regarding European growth prospects by saying they would be "particularly weak" through the third quarter. During Thursday's post-decision press conference, Mr. Trichet reiterated that the ECB currently has "no bias," which traders took as a sign that the bank would remain on hold through the September meeting when the ECB will also present its new growth projections.

The pound reached its lowest level since November 2006 against the dollar in overnight trading. On Thursday, HBOS, the U.K's biggest mortgage lender, said house prices fell by 8.8% to 177,351 pounds ($345,825) in the year to July. It was the biggest decline in 25 years, as banks limited credit and economic pessimism grew. As expected, the BoE maintained its 5.0% lending rate on Thursday. Traders will be better able to assess the Bank of England's next move after the release of its Inflation Report on August 13 at 05:30 EDT. The next economic reports will factory gate prices and the Trade Balance on Aug 11 at 04:30 EDT.

The aussie was sold to its lowest level since February 7 in overnight trading, as traders speculated that demand for Australia's commodities will wane as global growth slows. On Thursday, a government report said the number of people employed in Australia rose by 10,900 in July, and that the number of employed in June was revised higher to a gain of 22,200. Today was the ninth day in a row of decline for the aussie, a stretch that hadn't been seen since January 1995. The RBA Monetary Policy Statement will be released on August 10 at 21:30 EDT.

The cad continued to rise Friday from its break of trend line resistance on July 25, reaching its highest level since August 2007 after oil and other commodity prices continued to decline. It was the biggest weekly loss for the loonie since 1971. Statistics Canada said on Friday that 55k Canadians lost their jobs in July, the biggest fall since February 1991.The unemployment rate edged down 0.1 percentage points to 6.1%, as many people, particularly youth, left the labor force. Employment gains have averaged 10,000 per month in 2008, a 66% decrease when compared with an average monthly gain of 30,000 for 2007. Part-time employment has grown by 3.5%, much faster than the 0.9% growth in full time jobs, a further sign of weakness in Canadian employment. The report is likely to place greater pressure on the Bank of Canada to decrease borrowing costs at its next meeting on September 3.

The swissy rose as equity markets advanced, reaching its highest level since February 26. On Friday, the State Secretariat for Economic Affairs (SECO) said the unemployment rate held steady near a six year low at 2.3% as restaurants and hotels hired workers for the summer.

The yen fell against the dollar as equity markets completed their second straight weekly gain. The trend of yen weakness looks to be continued after the Japanese government acknowledged on Wednesday that the economy is “deteriorating,” and that “there is a high possibility the economy has entered a recession." Overall exports fell in June for the first time in 55 months (and for the tenth straight month to the U.S., making the largest monthly decline since November 2003), factory output has fallen for two straight quarters and Japan’s jobless rate rose. Toyota recently fired 800 workers because of falling U.S. demand for SUV’s and the world's second-largest carmaker reported its biggest drop in profit in five years on Thursday. And in another sign of weakness in the Japanese economy, corporate bankruptcies rose to 1,372 in July, the highest in 5 years, led by real estate and construction companies.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.