After news of the $3 billion loan rescue plan of CIT Group, the U.S. dollar is looking decidedly piqued.
In fact, the greenback has fallen to a six-week low against the euro. Bloomberg reports, “The dollar declined 0.7 percent to $1.4204 per euro at 10:51 a.m. in New York, from $1.4102 on July 17. It reached $1.4249, the weakest level since June 5.”
Bloomberg said that CIT Group’s rescue loan that is keeping the bank out of bankruptcy is increasing investor’s risk appetites. “Encouraging demand for higher-yielding assets,” says Ye Xie.
The news backs up why foreign investors have sold $22.5 billion in U.S. debt in May.
Reuters (via CNNMoney) reports, “Foreign investors sold U.S. Treasurys in May, as investors grew more comfortable with risky trades in stocks, commodities, and higher-yielding currencies.”
This is a significant difference from April’s data on U.S. Treasury selling, which reported inflows of $41.89 billion.
The reason behind taking on more risk is the small rally in the stock market, which may have pulled investors out of the dollar, making Treasuries less attractive.
Brian Dolan, chief currency strategist for Forex.com, told Reuters, “This data may be completely reversed in June because of the huge Treasury issuance last month and we could see foreign investors piling back into Treasurys.”
But is weakness in the dollar just an anomaly?
Let’s take a look at commodities for part of the answer.
The Wall Street Journal reports, “Crude-oil futures rose Monday, lifted by firmer equities and a weaker dollar, amid fresh hopes about the outlook for the economy.”
Crude oil futures for August hit a high of $65.90 before noon today as the dollar lost ground to its major competitors. Oil also rose as economic indicators for June climbed 0.7%, the third monthly increase, reports Moming Zhou of MarketWatch.
And if economics are improving, demand for oil grows.
But oil isn’t the only commodity affected by dollar fluctuations. Gold, of course, is the other major commodity moving when the greenback moves.
MarketWatch reports, “Gold futures rose above $950 an ounce Monday, climbing to their highest level in more than five weeks as a private-sector rescue of U.S. lender CIT Group raised economic optimism, pressuring the dollar and boosting crude oil prices.”
The interesting thing is that speculators as reported by the Commodity Futures Trading Commission hold 60% of “outstanding” gold contracts.
Speculators are traders who buy contracts for no other purpose than to take advantage of price movements.
Harinder Singh, currency expert and editor of Currency Profits Trader, writes of commodity price rises, “This does not bode well for the U.S. dollar, so we have to watch few more days if equities peak out to support the dollar. The dollar trade below 80 is bearish and we need to watch it to hold a support near 79.40.”
Today the U.S. Dollar Index has fallen under 79, meaning more pain for the dollar might be in the future.
If you’re interested to find out how Harinder would play this move, here’s how to join his service, Currency Profits Trader.
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