The US Dollar surges as Oil Prices Fall

The U.S. Dollar edged up slightly against major currencies as investors speculate that statements made by officials of the G8 could cause oil prices to fall.  The Dollar also benefited from better than expected U.S. job data and reduced expectations that the European Central Bank will further increase interest rates after last week’s increase of 25 basis points.

Crude oil price fell to $143.56 per barrel; since energy consumption in the U.S. is very high, there is a close negative correlation between crude oil prices and the U.S. Dollar.  Analysts believe that comments from the G8 will be supportive of the U.S. Dollar because the main focus of the forex market is crude oil prices and its effect on inflation.  A stable U.S. Dollar will certainly be one of several pre-conditions to stabilize crude oil prices.

Many analysts also believe that the economy of the Euro zone is much worse than what officials at the European Central Bank want to admit, and as a result, there is a limited scope for additional monetary tightening.

Investors are of the opinion that risk to economic growth and the liquidity crisis in the financial sector will keep the Federal Reserve from increasing the Federal Funds rate from the current 2%.