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US Dollar down Almost 12% since January 2017

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Aug. 14 2017, Updated 4:36 p.m. ET

US Dollar Index 

The US Dollar Index fell 0.36% to 92.96 on August 11. It fell ~0.5% last week. The US dollar fell due to the following reasons.

  • geopolitical tension between the US and North Korea
  • a lower-than-expected rise in US inflation in July 2017

On August 11, the US Bureau of Labor Statistics reported that US inflation rose 0.1% in July 2017 compared to June. A Reuters survey had estimated that US inflation would have risen by 0.2% in July 2017.

Technical selling also led to a fall in the US dollar last week. The US dollar fell for the fourth time in the last five weeks.

The PowerShares DB US Dollar Bullish ETF (UUP) follows the US dollar’s performance. It fell 0.37% to $24.11 on August 11, 2017. It has fallen 8.88% YTD (year-to-date). Likewise, the US dollar has fallen ~12% YTD.

The US dollar fell due to the following causes.

  • President Trump’s inability to deliver tax subsidies and fiscal stimulus
  • doubts as to whether the Fed will hike US interest rates again in 2017
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US dollar and crude oil 

Crude oil and the US dollar are inversely related. A weak US dollar makes crude oil (BNO)(USL)(USO) more economical for oil importers. Consequently, crude oil (RYE)(VDE prices rise.

Higher crude oil prices have a positive impact on oil and gas producers such as Stone Energy (SGY), Apache (APA), Warren Resources (WRES), and QEP Resources (QEP).

US dollar’s high and low 

The US Dollar Index hit a high of 103.8, the highest level in 14 years, on January 3, 2017. On the other hand, the US dollar hit 92.7 on July 31, 2017—the lowest level in 13 months.

Impact  

Expectations of a weak dollar in the second half of 2017 could help crude oil (IEZ) (XES) prices. Higher crude oil prices could have a positive impact on oil producers such as Warren Resources and QEP Resources.

In the next part of this series, we’ll analyze whether crude oil prices would rise or fall this week.

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