Published 11/02/2023 16:45
Oil closed higher, on a day of weak dollar and heightened risk appetite. Expectations that the cycles of monetary tightening in the world are coming to an end were reinforced by a new round of soft data from the American labor market and by the maintenance of interest rates by the Bank of England (BoE).
On the New York Mercantile Exchange (Nymex), WTI oil for December closed up 2.51% (US$2.02), at US$82.46 per barrel. Meanwhile, Brent for January, traded on the Intercontinental Exchange (ICE), rose 2.62% (US$2.22), to US$86.85 a barrel.
The devaluation of the American currency tends to support the price of commodities, as it makes them cheaper for traders in other currencies. “The weaker dollar, coupled with the broader improvement in risk sentiment, is helping to boost oil prices as optimism over demand projections grows,” commented analyst Michael Hewson of CMC Markets.
The outlook for the interest rate trajectory of advanced economies is milder after the Federal Reserve (Fed) and the BoE chose to keep their monetary policy unchanged. “With the BoE following the Federal Reserve (Fed) in holding rates yesterday, hope is rising that we have finished interest rate hikes and that inflation will continue to ease,” Hewson said.
Data published today further reinforced this understanding, by showing that the unit cost of labor in the United States fell in the third quarter of 2023, when the market expected an increase. The number of unemployment benefit requests in the country rose a little more than expected.
“All recent employment indicators point to a cooling of the job market in the US,” said Oanda analyst Edward Moya. “Energy traders are beginning to believe that a dollar spike is in place as it appears likely that the Fed has ended the monetary tightening cycle given the recent weakness in the labor market,” he added.