Copper and other industrial metals are largely maintaining the losses experienced on Tuesday, as a strengthening dollar and the Federal Reserve's aggressive monetary policy outlook continue to negatively impact demand expectations. Copper saw a slight uptick on the London Metal Exchange, recovering marginally after a 2% decline on Tuesday, which was triggered by a pessimistic shift in equity markets.
The prospect of sustained higher interest rates aimed at curbing inflation is exerting downward pressure on all risk assets. Furthermore, a rising dollar intensifies this effect on commodities, such as copper, which are typically priced in the U.S. currency. This economic environment is leading investors to reduce their exposure to growth-sensitive assets, including industrial metals.
Despite these macroeconomic headwinds, the fundamental outlook for copper remains strong. Inventories on the London Metal Exchange are low, and demand drivers like increased shipments to the U.S., the expanding need for AI infrastructure, and the global energy transition are expected to provide underlying support for prices in the medium to long term. However, in the short term, concerns over tighter financial conditions and a potentially slower economic pace are dominant. Recent data from China indicated weaker demand, with retail sales falling 0.6% year-over-year and fixed asset investment down 4.1% year-over-year, both below expectations, adding to the pressure on metals.
