Markets

The weak dollar is driving prices

D.he oil prices held up well on Wednesday after the significant increase from the previous day. The decisive factor is the decision of the association of the most important oil-producing countries, Opec +, to reduce production overall in February and March. A barrel (159 liters) of North Sea Brent cost $ 54 that morning. That is 40 cents more than the day before. The price of a barrel of West Texas Intermediate (WTI) rose 13 cents to $ 50.06. This means that oil prices are near their highest levels since the severe slump during the first corona wave in spring 2020.

The Opec + wants to reduce the oil production in the next two months. The main burden is borne by the oil giant Saudi Arabia, while the second large producer, Russia, is even allowed to expand its production slightly. The decision is likely to be the result of the tense corona situation in many countries, which is weighing on the demand for crude oil. The decision came after a lengthy debate between the countries, which again initially could not agree. As has often been the case, Saudi Arabia ultimately showed itself ready to significantly reduce funding. The move was apparently not agreed with the other states. Russia’s Deputy Prime Minister Alexander Nowak spoke of a “New Year’s present”.

The gold price has also held up well and is close to its two-month high at $ 1948. Other raw material prices are also rising. At $ 8,002 per ton, copper is as expensive as it was last in February 2013, and zinc and aluminum are also heading for new highs.

Even if the Chinese economy is a driving factor in the short term, raw material prices are being supported not least by a weak dollar. The dollar index, as the ratio of American currencies to the world’s most important currencies, has been steadily heading towards a multi-year low since March. With a level of 89.3 points most recently, it is less than 0.8 points away from its six-year low at the beginning of 2018. For the euro, $ 1.2327 was last paid, as much as last April 2018. The six-year high of the common currency is slowly coming within reach of $ 1.2492.

The main topic on the foreign exchange market is the outcome of the runoff elections to the American Senate in Georgia. The outcome will determine whether the Republicans will retain their Senate majority. Should both seats go to the Democrats, President-elect Joe Biden should expect less resistance in the Senate. This would enable him to better implement his political agenda. It currently looks favorable for this.

Rising real interest rates can currently still do little to harm raw material investments. Although the yield on ten-year US government bonds has risen significantly since the beginning of the week from 0.91 to 1.002 percent, and is thus above 1 percent for the first time since March, the interest rate level remains low and, given the change in the US Federal Reserve’s inflation target, is increasing from a point target stay longer with an average goal. At the beginning of the year, the yield on ten-year US government bonds was still around 1.8 percent.

In the US bond market, however, a Democratic government with a majority in both houses of Congress is now more likely. This could lead to a steeper yield curve – that is, long-term interest rates rose faster than short-term ones – and weaken the dollar because the budgetary position is viewed as unsustainable in view of possible higher government spending under the democratic program, wrote Sebastien Galy, senior macro strategist at ist at Nordea Investment.

Inflation-indexed bonds are now pricing in an inflation rate of more than 2 percent over a ten-year perspective, the highest level since November 2018. That would also benefit the gold price, says Fahad Tariq, an analyst at Credit Suisse, according to the Bloomberg news agency. Most recently, however, the latter has mainly benefited from the worsening situation with regard to the corona pandemic, says Suki Cooper, precious metals analyst at Standard Chartered Bank. Low interest rates, loose monetary policy and high government spending would continue to support it, while the dollar will remain weak beyond 2021. This is also supported by the long-term cycle of the American currency, which had a six-year strong phase from 2014 to 2020 after a weak period in the previous twelve years.

Bitcoin should also benefit from these factors. The rate of the digital currency rose to more than $ 35,000 for the first time on Wednesday. A high of $ 35,879 was recorded on the Bitstamp trading platform. Since Bitcoin has the nimbus of an alternative, “better” currency, this suggests that a weak dollar, low interest rates and higher government spending will also support its soaring. Since the market is much tighter and barely regulated, this leads to a greater degree of speculation.

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