Oil hit a new record high of $93.80 and the dollar struck a new low yesterday as investors showed their growing certainty that the US Federal Reserve will cut interest rates on Wednesday.
The same conviction also saw gold approach $800 a troy ounce – its highest price for 28 years – while equities made gains. The move into gold reflects how investors fear rising inflation from the twin forces of higher oil prices and a weaker dollar.
Weighing on the dollar was the outlook for lower borrowing rates versus those of other economies when a two-day meeting of the Fed concludes on Wednesday.
Investors in Fed funds futures have largely priced in a 25 basis point cut in the 4.75 per cent overnight rate amid a deteriorating housing market and recent large writedowns at US banks.
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