Image by jhyerczyk via Flickr
Crude Oil futures prices are trading sharply lower this morning after the International Energy Agency pledged to release about 30 million barrels into the open market. This action by the EIA drove down the entire energy complex, driving up the U.S. Dollar and pressuring all major currencies with the exception of the Swiss Franc.
Today’s break in oil shows that the U.S. government is committed to stimulating the economy. Less than one day after Fed Chairman Bernanke said the economy was slowing, the global community must have realized that the end of the Fed’s stimulus plan called QE2 meant the days of free money flowing into the global economy were over and that something must be done to put more money into the hands of the spending public to get this economy moving again.
Bernanke acknowledged on Wednesday that things were taking place in the economy that he didn’t quite understand and that the Fed would likely stand pat on its monetary policy for at least the next 2 to 3 Fed sessions. While inflation seemed to be tamed for the time being, deflation wasn’t considered a major issue either.
Something the Fed may have figured out was that higher gasoline and oil prices have been a major drain on the U.S. economy. Match that up with high unemployment and one has the formula for a major slowdown in the economy.
The U.S. Dollar is benefitting this morning from lower prices because traders may be reading the action in the crude oil market as an attempt to jump-start the economy. In addition, news that China’s economy may be slowing could be a sign that demand from other countries is falling.
Yesterday Bernanke said that he thought the economy would improve during the second half of the year, looking at the same economic numbers the was looking at on Wednesday, it was difficult to see how the economy was going to pull this off given slow growth and high unemployment. By releasing oil from the strategic reserve, the U.S. has in effect made an attempt to stimulate the economy once again.
Should the U.S. economy make a sudden turnaround in the second half then this would bring the Fed closer to raising interest rates. This action would make the Dollar more appealing. This may be one of the reasons why the Dollar is trading better today.
