Copper price tumbles after dollar surges, Fed delivers hawkish message

Comex copper prices slipped on the morning of Thursday December 15 due to a surging dollar, which was fuelled by hawkish US monetary policy.

Copper for March delivery on the Comex division of the New York Mercantile Exchange declined 1.7 cents or 0.7% to $2.5875 per pound. Trade has ranged from $2.5760 to $2.6230 so far.

Comex gold for February settlement, meanwhile, plummeted $31.90 or 2.7% to $1,131.80 per oz. The precious metal is hovering around its lowest since February this year. 

Yesterday, the Federal Reserve – as expected – raised interest rates for only the second time since 2006 and indicated that it plans to increase the Federal Funds rate three times in 2017. 

It cited expectations of further expansion in economic activity, an improving labour market, and a further rise in inflation as reasons for the rate increase.

Market participants were widely expecting the move but chairwoman Janet Yellen’s press conference and new plan to raise rates at a quicker pace than had been anticipated added to the hawkish bias. The Fed also mildly revised its outlook for GDP growth to 1.9% from 1.8% for 2016 and to 2.1% from 2.0% for 2017.

In response, the dollar jumped to the highest since December 2002. The dollar index was recently at 102.99 

“With the US interest rate decision now out of the way, we wait to see whether the market now focuses on all the uncertainty that 2017 brings – including how big a splash the new US president will make, the fallout from Brexit and how emerging markets will react to what looks likely to be more hawkish US monetary policy,” Metal Bulletin analyst William Adams said.

In a packed data day, US weekly unemployment claims for December 1-8 at 254,000 were below the previous 258,000 and the psychologically important 300,000 mark.

Inflation figures in November including the core CPI and the CPI were both in line with expectations of a 0.2% uptick. Lastly, the Empire State manufacturing index for December at 9.0 easily beat the forecast 3.2. 

Turning to European markets, Germany’s DAX and France’s CAC-40 were up 0.5% and 0.6% respectively, while the dollar strengthened by 0.1% to 1.0447 against the euro.

In other commodities, light sweet crude (WTI) oil futures on the Nymex fell 80 cents or 1.6% to $50.24 per barrel, while Comex silver for March delivery was recently trading at $16.130 per oz, down $1.91.

(Editing by Mark Shaw)