17 Jan

US Dollar Hit a 3-Year Low: Good News for Crude Oil?

WRITTEN BY Gordon Kristopher

US dollar

The US Dollar Index (UUP) fell 0.64% to 90.39 on January 16, 2018—the lowest level since December 2014. The US Dollar Index declined 2.3% on January 9–16, 2018. US oil (USO) prices increased 1.2% during the same period. Higher oil prices benefit funds like the Vanguard Energy ETF (VDE) and the iShares Global Energy ETF (IXC).

US Dollar Hit a 3-Year Low: Good News for Crude Oil?

The US dollar fell steadily this month due to expectations that major central banks will raise interest rates in 2018. The US Dollar Index fell almost 10% in 2017. US crude oil prices increased ~12.4% in 2017, partially supported by a weak dollar. Higher oil (DWT) prices favor energy companies (IYE) (RYE) like W&T Offshore (WTI), Callon Petroleum (CPE), and Parsley Energy (PE). 

US dollar’s highs

The US dollar (UUP) hit 103.8 on January 3, 2017—the highest level in 14 years. It influences the PowerShares DB US Dollar Bullish ETF (UUP), which tracks the US dollar’s performance.

Impact

The Fed might raise the US interest rate three times in 2018, which is bullish for the US dollar. However, the improving economy outside the US could see the US dollar lag its peers. Major central banks could hike interest rates in 2018. Volatility in the US dollar could impact oil (UWT) prices.

Next, we’ll discuss Iraq’s crude oil production.

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