Oil, Sterling Fall; Dollar Rebounds

The US Dollar rebounded Friday as oil prices tumbled and the Pound took a beating after economic indicators showed a looming recession in Britain.  

Oil is Biggest Loser

Oil is the biggest loser after posting a sharp 5% upswing on Thursday.  The price of oil per barrel stood at $120 declining by 1% on the days trading.  The downturn eased inflation pressures and significantly aided the US Dollar to make a surge.

Wall Street Futures Trading took a positive turn which further boosted the Dollar’s rally.  The market also reacted favorably on Warren Buffett’s comment that the Dollar stocks are beginning to get rosy compared to the previous year.

Tom Fitzpatrick, chief of FX strategy at CitiFX New York also said the Dollar got a knee jerk market reaction owing to a push made by equities and the developments in oil and gold sector.

Fitzpatrick added that the FX market is closely watching commodities trades by seeing a move in the Dollar as prices of world oil moves.

UK Slump Fueled the Dollar

At the start of trading in New York, the Euro slumped by 0.7% registering at $1.4810.  The loss of Pounds Sterling further boosted the Dollar as the market saw a general decline of the British economy posting considerable low growth rates since the 1990s.  

UK’s GDP in second quarter showed a grinding economy failing to hit projected estimates of 0.2 percent rise.  This is the weakest performance so far of Britain leading analyst to predict future decline of London economy.

The situation in UK is similar to what is being experienced in the entire Euro zone showing considerable decline in European gross domestic products.  This could push ECB and the Bank of England to ease up on monetary policies.

The Sterling plunged 1.2% fueling a 0.8% rise of the Dollar against major currencies.  The Dollar also performed well against the Japanese Yen posting a 1.3% rise.  It has recovered from the slide experienced on Thursday and rebounded towards a high 110.66 Yen posted a week earlier.

Bernanke Speech Watched by Markets

The policy speech of Federal Reserve Chairman Ben Bernanke is being closely watched by the markets.  Mr. Bernanke will address a financial conference at Jackson Hole, Wyoming which could provide hints on how US financial authorities will approach the global economic crunch.

Stephen Maylon, a currency strategist at Scotia Capital said that Bernanke will probably strike a middle ground between risks to financial markets and risks to inflation.  Maylon agreed that the Fed Chairman will continue to follow a pragmatic approach to balance the risks involved in solving the US crisis.

Maylon further added that the downswing turn of world oil prices and the surge of the Dollar put the standing of the US economy on the first Open Market Committee meeting of the Fed on August 5.