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Commodities: Crude gains as rate cut hurts dollar

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Date: Wednesday 19 Mar 2008

LONDON (ShareCast) - The Federal Reserve’s three quarter point cut in US interest rates had dollar-denominated oil prices on the up Tuesday on expectations of further dollar weakness.

US light crude for April delivery finished the session $3.74 better at $109.42 a barrel on the New York Mercantile Exchange.

Many analysts think the central bank has left itself room to cut rates further as a 1% reduction had been expected this time. Lower rates will hurt the dollar but boost commodity prices which become cheaper for overseas buyers.

Oil fell $4.53 Monday, its biggest one-day drop in 17 years, as traders sold commodities amid fears of a recession and on news that US investment bank Bears Stearns almost collapsed.

Meanwhile, better than expected results from investment banks Lehman Brothers and Goldman Sachs helped soothe credit fears and concerns of any impact on demand for oil.

On the metal markets, gold went against the generally positive trend Tuesday despite a commodity-friendly cut in US borrowing costs.

The April futures contract closed up $1.70 at $1,004.30 an ounce in New York, but fell to below $980 in after hours trade as dealers assessed the Fed’s decision.

Elsewhere, silver and platinum weakened, but copper and palladium ended the day ahead.