News

May 13, 2008

Inflation Wipes The Smiles Away As The Dollar Rises And Metals Fall

By Rob Davies

After a long period of decline it now looks as if the dollar may have bottomed out, though few observers actually seem to be bullish on the US currency. Having got as low as $US1.60 to the euro, the dollar is now worth US$1.54, though this recovery seems to have more to do with concerns over the direction of the European economies rather than any great faith in any strong rebound in economic growth in the US. Whatever the reason, the rally in the dollar has had the usual effect on most commodities: it’s pushed them down.

The two exceptions were oil, which reached a new all-time high of US$126 a barrel last week, and tin, which climbed to a new record of US$24,595 a tonne. In terms of volume they could not be further apart. There is, though, a connection in that in both cases supply is constrained by government action, or rather inaction. Whether President Bush’s trip to Saudi Arabia this week will persuade the theocratic monarchy there to open a few more valves is unclear. But what is clear is the impact that...