High Oil Prices Dampen Dollar Sentiment - and BBQ Parties

The US dollar just had its third weekly decline against the Euro, as rising oil prices and weak home sales threaten to prolong and deepen the US economic downturn. The dollar fell to the lowest level against the Swiss franc in a month, and its weekly drop was the largest in two months.

Both Wall Street and Main Street are confronted with the big blow of record oil prices being traded every few days or even consecutive days. Thursday, oil hit a lifetime high of $135.09 a barrel on the New York Mercantile Exchange, and in the last nine weeks, oil has risen in eight of them. Americans starting their Memorial Day long weekend won’t be happy to know that the nationwide average retail price of gasoline went up to a record of $3.875 a gallon, according to AAA on Friday.

The US, being the world’s largest importer of oil, may see its economy suffer more if consumers are forced to reduce their spending of non-essential items in light of rising food and fuel prices, since 2/3 of its economic growth is driven by consumer spending.

We are still not getting positive news from the US housing sector: Sales of existing homes fell for a second month in a row in April, and inventories of unsold homes grew 11%. At this current rate of sales, it would take at least 11 months to get rid of the unsold existing homes.

Eurozone’s Prospects

Eurozone economic prospects are looking shaky too. Last week the Eurozone Purchasing Managers Index data came in weaker than expected, showing that activity in the Eurozone economy dropped to its lowest level in almost five years in May. With regards to the Euro, European Commissioner for Economic and Monetary Affairs Joaquin Almunia said Friday that policymakers around the world are concerned about the strong Euro.

He said, “There is concern…there is concern that we see every time there’s a meeting of Group of Seven (leading industrial nations) or the International Monetary Fund. There is concern because excessive volatility is bad for everyone.”

The US dollar sentiment looks rather bearish in the near-term. Both the US and UK markets will be closed Monday, and trading volume will be very light, so beware of exaggerated unexpected moves in the currency markets.

Sunday:

New Zealand trade balance 2245 GMT

Monday:

US, UK markets are closed

Comments

[Zack Miller:]

interesting about the eurozone prospects. something few are talking about is the fact that of all things, the Israeli shekel is one of the world's strongest currencies right now. To combat record high oil prices, Israel is focused on green/clean tech.

2008 May 25 07:42 AM

[Tom Lindmark:]

Hey VWinner,
Let's keep the corporate promotion off the discussion boards.

Grace,
Pretty good short article. Question for you. It looks as if based only on one months data that Americans are starting to drive less and cut their fuel expenditures. Any thoughts on how this might impact things?

2008 May 26 12:24 AM

[seeksome:]

The only thing that will dampen my bbq is rain.Oil prices stink but thank God I live in the good old USA.Thank you veterans I salute you all!To get what you want at the price you want to pay go to:
seeksomething.com

2008 May 26 09:56 AM