NEWS / Foreign Exchange

Dollar dominates as commodity prices collapse

May 22nd - There??™s little on the economic calendar as the new trading week gets underway but the dollar does seem to have initiated something of a rally back from recent lows of late, with many seeing this as being directly linked to the retreat in commodity prices ??“ gold is now trading below $650/oz, $50 off Friday??™s highs and almost $100 lower than the record highs of mid-May. Assuming this correction continues then in the absence of any additional fundamental data, the greenback should be able to at least hold onto some of its recent gains, although in the longer term the fact that US interest rates are expected to start levelling off in due course needs to be taken into account. With no significant economic announcements due before Wednesday a rather choppy spell of trading may now follow, but US data later in the week including durable goods orders and new home sales will be closely watched. Any signs of inflationary pressures may again add to calls at the Fed to keep the hawkish stance over rates going for that little bit longer, in turn extending the dollar??™s positive run, but at the same time a significant rebound in commodity prices could signal an end to this bullish trend??¦

Tim Wilbraham and Enis Mehmet