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    European Session – Commodities rally as Fed rate hike hopes fade; Dollar steady ahead of Yellen

    Commodities rallied in European trading on Monday as a weaker dollar boosted commodity prices across the board just as market expectations of a Fed rate hike in June fell drastically. The dollar’s slide on Friday following a much weaker-than-expected jobs data has increased sentiment for commodities such as copper, zinc, nickel and iron ore, as well as for oil.

    The Thomson Reuters/Jefferies CRB commodities index was up 1.5% at 192.25 in afternoon European trading, boosted in part by stronger crude oil prices. Reports of an attack on oil infrastructure in Nigeria led to a 1.4% jump in US oil futures, adding to its earlier gains. WTI futures were last trading at $49.74 a barrel.

    Gold prices also firmed in European trading, having dipped at the start of the session, and last stood at $1243.50 an ounce.

    The dollar was mostly flat against the euro and the yen but fell against commodity-linked currencies, which tracked commodity prices higher. The Australian dollar reversed earlier losses to climb to a fresh 3½-week high of 0.7379 against the greenback, while the Canadian dollar rose to a near 3-week high of 1.2842 per US dollar.

    Emerging market currencies such as the Indonesian rupiah and the Malaysian ringgit were also boosted by the commodities rally and the weaker dollar.

    The euro was stuck in a tight range against the dollar with little on the data front to move the markets. The main data to come out of Europe today was the Eurozone Sentix index. According to the survey, sentiment across the euro area rose to the highest since December, with the index climbing from 6.2 in May to 9.9 June. Expectations were for a reading of 7.0.

    The single currency held steady around 1.1350 against the dollar but was a bit more erratic against the pound as sterling was still reeling from the latest Brexit polls. New polls over the weekend showed growing support for Britain to leave the EU, raising fresh fears for a possible Brexit shock with only 2½ weeks to go until the referendum.  The pound see-sawed around the 1.44 level against the dollar and last stood at 1.4446 dollars. The euro meanwhile dipped to 0.7858 pounds in late European session.

    The dollar managed to reclaim the 107 level against the yen after earlier dropping to a one-month low of 106.36 yen and was last trading around 107.30 yen. There was little reaction to the latest US labor market conditions index which fell by more than expected in May. The index declined to -4.8 in May from a downwardly revised -3.4 in April.

    Apart from commodity currencies, one of the better performing currencies on Monday was the Swiss franc. The dollar fell to a 3-week low of 0.9714 francs as the Swiss currency benefited from some risk aversion on the back of growing concerns about a slowing US economy and a UK exit from the EU.

    Dollar trading will likely remain cautious ahead of Fed Chair Janet Yellen’s speech at 16:30 GMT at the World Affairs Council of Philadelphia. Yellen is due to speak on Economic Outlook and Monetary Policy and will likely provide some clues as to whether the Fed is moving towards a summer rate hike. The speech will be closely watched as it will be the last public appearance from a Fed official before the June 14-15 FOMC meeting.

    Looking ahead to tomorrow, the Reserve Bank of Australia’s latest monetary policy meeting will come into focus in Asian trading.

    Risk Warning: Forex, Commodities, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure.

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