Copper Rallies as US Dollar Wavers

Copper prices have rallied after months of lows amid a slight drop in the value of the U.S. dollar. Prices hit their lowest point since November 2020 in early July as increased COVID-19 cases in China, rising inventories, hawkish interest rates and a potential recession affected investor sentiment.

By July 7, 2022, copper for delivery in the month of September was trading at $3.57 per pound, which is about $7,875 on the New York COMEX Market, rising by 5% from the previous day. Shanghai’s most-traded copper contract went up by 0.2% to roughly $8,640 (57,945 yuan) per tonne as the dollar wavered by 0.1%. The slightly weakened dollar made greenback-denominated metals a little cheaper for holders of other currencies.

However, those looking to invest in the red metal based on the dollar’s weakening should note that it is unlikely that the greenback will further weaken in the near future. A Reuters poll showed that market expectations of aggressive interest rate hikes by the Federal Reserve coupled with the dollar’s safe-haven appeal will allow the currency to stay strong for the next three months.

As the cost of living has risen steadily, partly due to rising energy and oil prices, supply chain constraints and trade barriers, the Federal Reserve has taken an increasingly hawkish stance to forestall inflation. In mid-June, for example, the Fed increased its benchmark interest rate by 0.75 percentage points, its most aggressive increase since 1994. Fed chair Jerome Powell acknowledged at the time that the 75 basis point hike was abnormally large and noted that there could be another 50 or 75 basis points increase during the Fed’s July meeting.

At the same time, Fed officials reduced their predicted economic growth for this year from 2.8% in March to 1.7%. Even so, a statement from the committee showed an optimistic view of the country’s economy even with increased inflation rates.

While the Fed’s efforts to prevent the economy from descending into inflation are admirable, those efforts have led many to fear that a recession may occur instead. Last month, Powell himself said that while the central bank was not trying to provoke a recession, it was possible that the Fed’s efforts to battle inflation could lead to an economic recession.

The global economy isn’t doing so well either. International Monetary Fund (IMF) managing director Kristalina Georgieva recently said that the global economic outlook had “darkened significantly,” stating that they could not rule out the possibility of a global recession.

Copper extraction companies such as Southern Copper Corporation (NYSE: SCCO) will be closely following key indicators that could help in predicting the long-term performance of copper on the global market amid the turmoil currently being experienced.

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