The U.S. dollar is in the tank. Between the continuing talk by the Fed of asset purchases and reckless spending by government, the dollar appears to be on a one way ride lower. Even with the recent Middle East crisis could not move the dollar as it has become painfully obvious that it is no longer the safety trade.
Unfortunately, Oil and the U.S. dollar are inversely correlated and that does not provide for a good recipe. While oil is clearly higher over the past few weeks due to the Libya and other political concerns, the move of the U.S. dollar will help to fuel further moves higher. This will not end pretty as we see it and Fed Chief Bernanke is obviously willing to look the other way on this in order to pump up the economy.
But, eventually there is going to be a point that higher prices breaks the economic expansion. (Not to mention the problems that the money priming exercise has on food prices, now at an ALL-TIME HIGH!)
A couple of notes from Briefing.com
- ECB President Jean Claude Trichet Press Conference: says ‘it is not a sense of a start to a series of rate hikes’
- ECB President Jean Claude Trichet Press Conference: says ‘we have a shock’; when discussing energy prices; reason why they are vigilant
Update: At 9:05am the Euro/Dollar traded at 1.395