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Copper Prices Suffer Under The Pressure of a Strong Dollar

By Jim Williams

The Yin and the Yang between the U.S. dollar and copper prices continues this holiday shortened week. Copper prices declined in early overseas trading Tuesday, as investors turn their attention to U.S. data on durable goods orders, new home sales and consumer confidence for fresh indications on the strength of the economy and the timing of a potential U.S. rate increase.

The U.S. dollar index was up 0.75% at 97.18 early Tuesday, the strongest level since April 27. A stronger dollar reduces demand for raw materials as an alternative investment and makes dollar-priced commodities more expensive for holders of other currencies.

The dollar strengthened across the globe after Federal Reserve Chair Janet Yellen reiterated Friday that the central bank still expects to raise interest rates later this year if the economy continues to improve as expected.

The dollar received an additional boost after data showed that underlying inflation in the U.S. rose for a third straight month in April, supporting the case for a rate hike later this year.

Yellen also attributed a slowdown in first quarter growth to “transitory factors”, including a harsh winter.

Meanwhile, the euro fell below the 1.09-level against the dollar as the prospect of a Greek default continued to weigh on sentiment.

Officials in Athens are sending out signals that Greece will not be able to make its June 5th payment to the International Monetary Fund if a cash-for-reforms deal with its international lenders is not reached by then.

On the Comex division of the New York Mercantile Exchange, copper for July delivery fell 1.2 cents, or 0.42%, to trade at $2.799 a pound during European morning hours. Prices held in a range between $2.794 and $2.833.

Additional Reading
Andrew Hecht takes an in-depth look at the impact of the U.S. dollar in his latest Seeking Alpha article.

 

 

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