JPMorgan issued a statement that the US dollar will lose ground this year as the Federal Reserve maintains record low interest rates to stimulate spending. The statement also suggested the deficit and further quantitative easing will also push the dollar lower. As a result, the US dollar is likely to grow in use as the means to fund carry trades where the dollar is sold to buy a higher yielding currency.
“U.S. growth alone cannot support the dollar as it’s highly unlikely that the Fed will be lifting interest rates in the next 12 months,” said John Normand, the London-based head of currency strategy at JPMorgan. “Few people will be buying the dollar as an investment vehicle. Many people will continue to use the dollar as a funding currency.”
Source: Bloomberg
Oil prices were off slightly as investors digested the latest US Employment Report, falling by 35 cents at $74.67 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, oil gained $1.11 to $75.02 a barrel.
Oil prices have traded between $70 and $80 for most of the past year as the global economy recovered from last year’s recession, but developed countries struggled to regain strong growth. U.S. crude and fuel inventories have remained high, suggesting the demand for fuel remains sluggish.
Source: Associated Press
Oil slipped below $72 a barrel on weaker demand and a strengthening US dollar. By early afternoon in Europe, benchmark crude for January delivery was down 70 cents to $71.96 in electronic trading on the New York Mercantile Exchange.
Some analysts are skeptical that demand growth can continue beyond the middle of next year as the impact of massive government stimulus spending begins to ebb.
London-based Capital Economics expects oil to fall to near $50 a barrel by the end of next year on weaker than expected demand and a stronger U.S. dollar. Investors have often bought commodities such as crude this year as a hedge against inflation.
“As the boost from policy stimulus starts to fade and underlying weaknesses reassert themselves, demand should slow again,” Capital Economics said in a report.
“If we are right that the U.S. dollar resumes its recent recovery and fears of inflation and asset bubbles fade, oil prices should drop back next year too.”
Associated Press
