Copper prices, traded on the London Metal Exchange, fell by as much as 0.6% after US inflation data came in higher than anticipated. This led traders to increase their bets on the Federal Reserve raising interest rates. This decline followed the metal's first weekly fall since June, with other major metal contracts also experiencing drops due to a stronger dollar and general pressure on risk assets.
The September 11 US inflation report showed headline inflation rising 0.4% month-over-month and 3.4% year-over-year, while core CPI increased by 0.3% monthly. These figures prompted markets to push the probability of a Fed rate hike at the September 15-16 FOMC meeting to approximately 85-88%. Earlier in the month, copper prices had reached record highs, with the LME price exceeding $14,500 per metric ton and COMEX copper nearing $6.8 per pound.
Higher interest rates strengthen the US dollar, making dollar-denominated commodities more expensive for international buyers, particularly China, the world's largest copper consumer. Additionally, increased borrowing costs impact the construction and manufacturing sectors, which are significant consumers of copper. The Federal Reserve, under Chair Kevin Warsh, has maintained a hawkish stance throughout the year due to persistent inflation, especially driven by volatile energy prices, leading markets to price in multiple rate hikes.
