Recent days have seen an intense debate on the hot topic of the year — commodity prices. We have seen commodities across the board tumble in the past few months. Pessimists have started writing obituaries for the commodity bull and pronounced an end to the ascent in commodity prices. The scale of the rout can be seen in the Reuters-Jefferies CRB index, a basket of 19 commodities, which has fallen below 400 points to its lowest level since early April, a drop of about 14 percent since a record peak above 473 in early July.

So is the commodity supply/demand squeeze over?

Crude Oil has corrected over 15% from the top. Gold, Silver, Copper, Wheat and other commodities have also retreated from their respective highs. The heavy selling witnessed in the last few days has raised concerns that the air is leaking from the Commodity bubble and that a multiyear bull market might end soon.

It has been well established of late that the commodity market has exhibited many of the characteristics of a bubble. Thus we may be very well at the beginning of a bursting asset bubble. Historically, price bubbles have been destined to burst under their own weight, and at a moment's notice. As the charts of the dot-com and housing bubbles show, the fall can be just as dramatic as the climb.

The Sport Utility Vehicle has been an American icon ever since it was born into mass popularity during the days of World War II when the American Willys Jeep was introduced in the US car market. Vehicle buyers were drawn to their large cabins, higher ride height, and perceived safety. Additionally, full-size SUVs have greater towing capabilities than conventional cars, and can haul trailers, campers and boats. SUVs had the added benefit that they could carry more passengers than a pick-up truck. Finally, SUV owners had a higher perceived social wealth.

For 17 years, the Ford (F) F-150 Pick-up truck was the best selling vehicle in America on a monthly basis. That spot was lost to not only one car, but to four. The Toyota (TM) Camry and Corolla and Honda (HMC) Civic and Accord all passed the Ford F-150 in sales for the month of May and more vehicles are expected to make the leap. Light truck and SUV sales at major auto makers are down anywhere from 12 percent at Toyota to 37 percent at GM. GM announced plans to close four plants that manufacturer trucks and SUVs. Nissan (NSANY), Ford and Chrysler all have similar plans.

Inflationary pressures, coming at a time when there are palpable signs of economic slowdown, have been spooking the global governments, policymakers, financial authorities and marketmen alike.

Worldwide, prices of commodities like crude oil, wheat and rice have skyrocketed in the last year or so. Policymakers have been finding themselves especially helpless in the present situation due to the "global" nature of the current inflation. Central bankers are also in a fix as, given the slowdown in economic activity, they won't be able to fight the inflation the way Volcker did by aggresively rasing the interest rates back in 1970s. Stagflation is extremely difficult for conventional policy instruments to deal with since any attempt to deal with one of the problems tends to exacerbate the others.

Anyone who has been closely following the foreign exchange market lately must have been aware of the gradual strengthening of dollar against world's other major currencies in the last few days. The dollar has gained an impressive 650+ pips against euro, ever since it hit a low on 22nd April (the euro traded at 1.6018 against dollar). The gain has been especially sharper in last few trading sessions, wherein the dollar has gained close to 500 pips against the euro in the last 5 days and is trading at its one month high. On Friday the 13th, the U.S. dollar will be finishing with the its biggest weekly gain in 3 years . The U.S. currency climbed 2.5 percent this week against the euro, the biggest increase since June 2005. The dollar also rose 2.9 percent versus the yen, the most since December 2004. Apart from it, the U.S. dollar gained 2.5 percent against its Australian counterpart, the biggest gain in 3 months and 2.3 percent against the New Zealand currency.

So what exactly has brought back the faith in dollar? What interests us the most is that a relatively quieter rebound in dollar is being witnessed at a time when the U.S. consumer price index increased by 0.6 percent in the latest quarter and when crude oil has been hitting newer high each day. Well, seen from a different perspective, a higher than expected U.S. CPI data only ended up helping the dollar's cause. One week ago, the likelihood that the U.S. Federal Reserve would raise its benchmark interest rate at the Aug. 5 meeting was zero, according to fed funds futures prices. Now, the odds are better than 65 percent.