Weak Data Hits Dollar, Bonds

U.S. 10-year Treasury bond prices pushed higher today, continuing to bounce off of yearly lows. Today, economic data was released in the U.S. which pointed to weak inflationary pressures, which led traders to reduce bets that the Fed would lift rates this year. For the last month, the U.S. has been able to produce positive-growth, inflationary economic reports, which have pushed bonds lower, as traders were betting that the Fed would not be forced to cut rates this year. With bonds at extended lows, traders bought bonds today on a weak economic report.

The dollar fell against the euro today on weak inflationary data, after the CPI numbers came in weak, as well as a disappointing industrial production number. The dollar had been surging over the euro, on a string of turnaround reports that began in early May. Today's weak data lent weight to arguments that the Fed will be forced to cut rates before the end of the year. The dollar and the euro both rose against the yen this morning, after the BoJ held rates at 0.5%. The euro pushed to new record highs over the Japanese currency. The U.S. dollar fell back against the Canadian dollar today.

Crude oil futures continued to gain today, rising 0.5%. After a somewhat weak Energy Department report on Wednesday, traders are betting that U.S. refineries will not be able to keep up with summer demand. Summer is typically a period of high energy demand and rising prices. Traders are betting that U.S. refineries will not be able to handle the task, which sent prices higher today. Natural gas futures rose 1.4% on summertime demand issues.

Gold rose 0.4% on dollar weakness today. Gold usually trades inversely to the dollar and with oil; today's gold action was dominated by dollar weakness. Traders sold the dollar and bought gold, as the euro advanced on weak U.S. economic data. Copper futures rose 1% after weak data from the U.S. lessened interest rate worries.

Grains traded mixed today. Soybeans rose 2.5%, corn jumped 2.2% and wheat fell fractionally.

John Lee
Associate Editor
johnl@tradingmarkets.com