Crude Oil Spot Prices Deflate Amid Overblown US Dollar

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We are going through interesting times in the global markets.

A strong rise in crude oil prices in the second quarter led to inflation, which in turn led to interest rate hikes in the United States and other countries. Higher interest rates meant that the US dollar strengthened as it attracted investor interest due to potential returns on USD-denominated assets such as Treasury securities. As the Federal Reserve’s hawkish monetary policy tightened its grip on inflation, the US entered a technical recession that triggered global recession fears.

The result of this chain of events? The US dollar is so strong that oil is relatively difficult to afford due to the exchange rates of various currencies. There is a current drop in oil prices reflecting a bearish trend as traders quickly price in a difficult recession. Even the sense that the pandemic has subsided – giving businesses a chance to accelerate to pre-COVID levels – is dwarfed by the larger task of bringing down inflation and higher borrowing costs.

Crude oil prices are lower at around $77 per barrel at the time of writing, but this is in the context of what could be seen as an inflated US dollar, which is much stronger against other major currencies such as EUR or GBP. However, the lower oil prices could begin to ease inflationary pressures in the transportation of raw materials and finished products to be shipped to consumers.

What does this mean for marketers? For starters, the strength of the US dollar can be undermined by slower or negative growth in the economy, so the third quarter GDP reading on September 29 is an important indicator to watch. Also, the Federal Reserve is expected to continue to tighten monetary policy, indirectly supporting the strength of the US dollar, given the pattern of events so far. Finally, US exports and orders of durable goods may feel the pressure of the bubble expanding around the US dollar.

The August US Durable Goods Orders report is released later today and is expected to have weakened from minus 0.1 percent to minus 1.1 percent due to higher prices and cautious budgeting as economic headwinds pick up.

Other notable business events this week include European Central Bank (ECB) President Christine Lagarde’s speeches and Fed Chair Jerome Powell’s speeches tomorrow, September 28. Both central bankers are expected to maintain their hawkish rhetoric, which may affect market sentiment depending on the content of their speeches.

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This material does not contain and should not be considered as containing investment advice, investment recommendations, an offer or solicitation for any transactions in financial instruments. Please note that such business analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks involved.

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