Investing.com - Copper prices dropped to two-week lows on Thursday, after the Federal Reserve's first rate hike in almost a decade pushed up the dollar, dampening demand for raw materials.
Copper for March delivery on the Comex division of the New York Mercantile Exchange slumped 2.5 cents, or 1.22%, to trade at $2.046 a pound during morning hours in London. It earlier fell to $2.037, the lowest since December 3. Meanwhile, three-month copper on the London Metal Exchange shed 1.1% to $4556.00 a metric ton.
In a unanimous decision, the Fed raised the target for its main short-term rate to a range of 0.25% to 0.50% from a range of 0% to 0.25%, as widely expected, following the conclusion of its policy meeting on Wednesday.
Speaking at a press conference following the announcement, Fed Chair Janet Yellen vowed that the FOMC will not be mechanical in its approach to normalize monetary policy and that future rate hikes would be gradual and data dependent.
In its latest median projections, the FOMC anticipates that the Fed Funds Rate will reach 1.375% by the end of 2016, implying four quarter-point hikes next year, slightly more hawkish than expected. Most market analysts expect the Fed to next raise rates in the first quarter of next year.
The dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 98.70, after hitting highs of 99.00 overnight, the most since December 3.
A stronger dollar reduces demand for raw materials as an alternative investment and makes dollar-priced commodities more expensive for holders of other currencies.
Copper is on track to post an annual decline of 25% in 2015 as fears of a China-led global economic slowdown spooked traders and rattled sentiment. The Asian nation is the world’s largest copper consumer, accounting for nearly 45% of world consumption.
Elsewhere in metals trading, gold futures fell sharply on Thursday, as the U.S. dollar surged after the Federal Reserve raised interest rates for the first time in nearly a decade.
The yellow metal is on track to post an annual decline of 10% in 2015, the third yearly loss in a row, as speculation over the timing of a Fed rate hike dominated market sentiment for most of the year.
Rising interest rates historically have been bad news for gold, which can't compete with the higher interest rates offered by other assets.
The U.S. is to release a weekly report on initial jobless claims at 8:30AM Eastern Time Thursday, as well as data on the Philadelphia Fed manufacturing index for December, as traders look for further indications on the strength of the economy.