U.S Dollar Heads Lower on Growth Worries

By John Lee

U.S. 10-year Treasury bonds were fractionally lower today, but closed up on the week, as global equities weakness continue to plague international markets, and U.S. subprime mortgage concerns run rampant. Bonds shot higher this week as global equities markets experienced another dramatic selloff this week, and traders sought bonds for long-term safety. The U.S. subprime mortgage market continues to weaken, after two major subprime lenders recently reported that they would not be able to pay off creditors. Bonds usually fall on strength, and rise on economic weakness, so traders are viewing global equity insecurity and subprime weakness as a major negative for the economy.

The dollar fell against the yen and the euro today, on speculation that economic growth is weak in the U.S., and subprime troubles will spread to other areas of the U.S. economy. The yen has been a major focus lately in the currency market, moving inversely with global equities markets as the effects of the carry trade unfold. Traders borrow yen to invest in more profitable assets; when there is major risk in the markets, investors buy back the yen and cover their risky positions, thereby sending the yen higher. The international currency market has favored currencies backed by inflationary, positive-growth economies, which Europe has proven itself to be. Today's dollar action points to investor insecurity as to the fate of the dollar; a string of positive reports will be necessary to send rates higher. The yen, although it has bounced back slightly from recent lows, will need major help from the Japanese economy in order to necessitate a rate-hike.

Crude oil fell about 0.8% to 6-week lows, on reduced worries that Iran will remove its oil supplies from the international market. With the UN actively imposing sanctions onto Iran to deter it from its nuclear program, many investors feel that Iran's oil supply could be removed if the situation escalates further. Crude had been trading near 60 for some weeks before breaking support on Monday. Crude has since fallen nearly $3, with OPEC signaling that more output reductions are not necessary at this time. Natural gas fell about 0.5% on continued warm weather expectations.

Gold shot higher today 0.7% as the dollar fell on the international market. Gold usually moves inversely to the dollar and with oil, and it was dollar action that dominated today's trading. However, lately gold has been trading in-line with the equities market, and could be seen as a general proxy of market health. Copper rose about 0.7% on continued signs that China's demand for the metal is increasing.

Grains rose across the board today. Corn rose about 0.4%, wheat gained 1.2% and soybeans rose about 0.3%.

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