The dollar is proving resilient, which provided some need relief from surging oil and gasoline prices Tuesday (June 10). The national average retail gasoline price did spurt higher by 2 cents to a price of $4.043, according AAA and the Oil Price Information Service. However, after reaching a new record high of $139.12 per barrel late last week, oil futures dipped to around $131 per barrel Tuesday.

The dollar has been operating in a three steps forward, two steps back mode for the last couple months. The greenback has been stubbornly refusing to break down any more, regardless of negative news reports and other ongoing economic concerns. The dollar broke past 107 yen in Tuesday’s trade, territory unseen for sometime. This puts the dollar about 10 pips off its low from early 2008, of 97 yen.

While holding steady or growing modestly against many other world currencies, the dollar also fought back against the Euro. Late last week, a report from European Central Bank’s Trichet hinted at pending interest rate hikes, which spurred a spike in the Euro-dollar and led to the largest one day rise in oil futures in Nymex history Friday. It is the dollar that has been pushing back in early currency speculation this week. After climbing past $1.56, the Euro currently nets $1.5472, still well off its record high of a couple months ago just over $1.60.

A rising dollar should help in various economic components of the US economy, which is good news for struggling Americans. Grocery prices have become hard to manage for many, along with the devastating fuel prices. A higher dollar is usually a good omen for lower oil and gas. Unfortunately, the dollar has not moved strongly one way or the other for sometime, which has allowed other market factors and supply and demand to direct oil prices.

There is some good news on the horizon on the oil and gas price front, according to some forecasts and reports. The near-term looks to provide some more upwards price movement, but many economists believe energy prices has reached a point of market resistance globally, which should reduce demand and help push down prices later this year and into 2009.

Last month, the Energy Department forecast a peak monthly gasoline price average of $3.73, which would occur in June. Considering we are one-third into June and have been hanging around $4 thus far, their forecast looks low. A revised forecast suggests a peak monthly price average of $4.15, to occur in August. The revisions also affected oil, which were projected last month to average $110 per barrel for 2008. New projections are that oil will average $122 over 2008.
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The better news is that while the Energy Department did adjust price forecasts for oil next year from $103 to $126, this would indicate an expectation of essentially flat price movement over the next year and a half. Worldwide, oil demand is expected to fall in developed countries. Protests have been increasing in many parts of Asia, Europe and North America, as citizens express their anger with politicians and big oil. Additionally, many airlines and other oil-driven industries have been cutting services and production in lieu of contracting consumer demand.

One hindrance to contracting demand has been increased reliance on oil in some developing countries. Earthquake reconstruction in China is expected to drive a 5.5 percent rise in oil demand for the fast-developing nation. Other developing countries have been using oil to drive construction, building growth, and other production. Once demand in these countries slows as well, oil and gas prices are more likely to see a drop around the world.

Market Recap

Stocks were mixed Monday. The Dow jumped 70 points, but the NASDAQ fell 15 points. The dollar surged on news that the Administration might use currency intervention to prevent a dollar downfall. Bernanke comments indicated again confidence that the worst has passed for major parts of the economy. The economy weighed on stocks Tuesday despite a dip in oil prices. The dollar surged Tuesday. The trade deficit reached its highest mark in 13 months. The Dow gained 9 points, while the NASDAQ and S&P dropped 10 and 3 point.

Neil Kokemuller
Tuesday, June 10, 2008
9:27 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.