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Dollar continues gains against the euro, yen
Trend has helped to push oil prices lower
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Published: August 16, 2008
LONDON
The buck may be turning into a bull.
The U.S. dollar extended its recent rally against major currencies yesterday as commodities fell and European and Japanese economies faltered. After sliding for years, the dollar may finally be on the way back up, some analysts argue.
The currency rose against the pound for the 11th straight day yesterday, to $1.85 -- its longest winning streak in 37 years. As recently as July, 1 pound would buy $2. At the same time, the dollar climbed to its strongest level in almost six months against the euro, which fell to $1.47, and to near a seven-month high vs. the yen.
So far, the trend has helped push oil prices lower. Long term, a stronger dollar has a range of consequences. It makes imports cheaper for Americans, and makes it more expensive for foreign companies to buy U.S. assets, such as Anheuser-Busch Cos., which is being sold to Belgian brewer InBev for $52 billion.
A stronger dollar would probably come as a relief to many European businesses, too, since it makes their exports to the key U.S. market more price-competitive.
The dollar reached an all-time low on July 15 of $1.60 to the euro, down from a peak of 82 cents to the euro in 2000. The dollar's decline is blamed on the large U.S. trade and budget deficits, investment flows out of the United States, and lately by interest-rate cuts by the Federal Reserve.
Some think that it's only up from here. The dollar is now benefiting from the widespread sense that prices for such commodities as oil and gold are on the brink of a massive fall, as traders gamble that a slowing global economy could lead to diminished demand.
"There's a fear that the whole commodity boom is going to end, that the bubble is going to burst," said James Hughes, a market analyst at financial traders CMC Markets. "That's giving the dollar a bit of cheer."
Oil fell to its lowest price in three months yesterday, briefly touching the $111 level. Oil closed at $113.77 a barrel, 24 percent below its July 11 trading record above $147.
A rising dollar typically pushes oil lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut their losses. A stronger dollar also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand.
Gold, silver and copper are also trading at multimonth lows, with the spot price of gold falling as far as $789 an ounce -- its lowest since December. Prices for vegetable oil, corn, wheat and rubber are falling, too.
As a result, investors who pulled money out of dollar-denominated investments and poured it into commodities are now reversing course -- and buying dollars again.
The dollar is also profiting from weakness among many of the rich nations' economies.
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