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Strong US dollar to remain a headwind for prices

There was no clear direction in commodity prices this week, even within the same types of commodities. The takeaway is that commodity prices were dancing to their own tunes. Take energy, for example. Natural gas and coal prices rose on fears that Russia will export less gas to Europe. By contrast, oil prices fell on heightened concerns about slower global economic growth and oil demand. What we can say about this week is that most prices were dragged on by a stronger US dollar. Indeed, the US Dollar Index hit highs last seen in the early 2000s. Our FX Markets service is the place to go for our analysis on the dollar, but, in summary, we think that it will remain strong for a while and potentially strengthen further. This will act as a headwind for most commodity prices, particularly gold. Turning to next week, US inflation data for June will be released on Wednesday. We expect a slowdown in monthly core consumer price growth to 0.4% from 0.6%. Elsewhere, our China Economics team will host a Drop-In on Friday to discuss Q2 GDP and June IP and fixed investment data. We expect GDP growth to have slowed further in Q2, but the data for June should point to a recovery.

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