Money and Metals

The new Treasury Secretary spoke today. "U.S. Treasury Secretary Henry Paulson, in his first major public address since taking the reins at Treasury, laid out many of the same positions as predecessor John Snow, including that on currencies. 'I believe that a strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals,' Paulson told a Columbia University audience."

The Financial Times. "The US dollar rose on Tuesday as strong economic data revived talk of an August rate rise and Hank Paulson, the new US Treasury secretary, reiterated his department's 'strong dollar' policy."

"Equally importantly, Tuesday's flow of US economic data was also strong, leading to investors to price in a greater probability of US interest rates being raised next week for the 18th straight meeting. 'With pipeline price pressures clearly intensifying, a rate hike cannot be ruled out next week,' said James Knightley, economist at ING Financial Markets."

"As a result, the dollar rose 0.3 per cent to Y115.02 against the yen and 0.2 per cent to C$1.1336 against the Canadian dollar, although it handed back gains to sit little changed at $1.2767 to the euro and dipped 0.1 per cent to $1.8697 against sterling. The yen was weak across the board, falling 0.3 per cent to Y146.83 to the euro and 0.4 per cent to Y215.08 against sterling, despite the lack of an obvious driver."

"Amid mounting signs that the US economy is beginning to slow, research by Lehman Brothers indicated that the Australian dollar is the currency most sensitive to a slowing US economy, followed by sterling and the Mexican peso. In contrast, the euro, yen and Swiss franc have historically risen against the US dollar in such circumstances."

"The Malaysian ringgit was a big loser Tuesday as Asian currencies were undermined by tepid stock markets and a view that any pause in US interest rate rises could be taken as a sign the US economy is slowing."

"JPMorgan Chase currency strategist Claudio Piron said there seemed to be an increase in risk aversion. Some investors were worried about a slowdown in US growth and a Fed pause in raising rates would be taken as a sign the authorities were concerned, too."

"Piron pointed to the failure of the Standard & Poor's 500 Index to rally beyond a 100-day moving average while the volatility index was finding support at higher levels. 'The market is very treacherous. It looks as though volatility is still trending higher and the equity markets are still struggling,' he said."

From MarketWatch. "Gold futures rallied Tuesday, tracking sharp gains in the oil market after Iran's president rejected a United Nations resolution demanding that it suspend uranium-enrichment activities. 'Gold is getting a safe-haven bid again,' said Amaury Conti, equity trader at Austin Calvert-Flavin."

"Gold for October delivery closed up $12 at $652.40 an ounce. The contract had fallen to as low as $635 early in the day. Other metals were also higher, with silver up 37 cents at $11.74 an ounce. Platinum added $16.90 to $1,258.50 an ounce, palladium ended up $4.80 to $321.95 an ounce."

"'On the one hand, there's worry about the Middle East and then with oil back over $75 a barrel, inflation fears are creeping back up,' he said. 'We've also had some hawkish comments from Fed speakers in the past few days," refueling concerns that the U.S. central bank may increase interest rates for an 18th time at next week's monetary-policy meeting.'"