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US Dollar Index Fell from an 11-Month High

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Jul. 5 2018, Updated 8:14 a.m. ET

US Dollar Index 

The US Dollar Index fell ~0.38% to ~94.67 on July 3, while August WTI oil futures contracts rose 0.3% to $74.14 per barrel that same day. The depreciating US Dollar Index supported oil prices.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased ~1.04% to $42.68 on July 3. XOP seeks to follow the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

Resolute Energy (REN), SRC Energy (SRCI), and WPX Energy (WPX) rose ~7.3%, ~3.14%, and ~3.12%, respectively, on July 3. These stocks were the top percentage gainers in XOP’s portfolio on the same day. These stocks account for ~4% of XOP’s holdings.

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US dollar’s highs and lows  

The US Dollar Index fell to 88.6 on February 15—the lowest level since December 2014. WTI oil futures hit $61.34 per barrel on February 15.

The US Dollar Index hit 103.2 on January 3, 2017—the highest level in 14 years. WTI oil futures hit $52.33 per barrel on January 3, 2017, which shows the broadly inverse impact that the US dollar has on crude oil prices.

The Power Shares DB US Dollar Bullish ETF (UUP) seeks to track the US Dollar Index’s performance. UUP fell 0.32% to $24.98 on July 3, while the US Dollar Index fell ~0.38% that day.

The US Dollar Index has appreciated 3.1% year-to-date. WTI crude oil prices rose ~22.8% during the same period despite the strong US Dollar Index. WTI oil prices rose due to several bullish drivers.

Impact  

On July 3, the US Dollar Index was near its 11-month high of ~95.38 hit on June 28. Escalating trade wars could make US imports more expensive, which could increase US inflation and interest rates and support the US Dollar Index.

The Fed is expected to increase the US interest rate two more times in the second half of 2018, which could have a positive impact on the US Dollar Index. Expectations of a strong US Dollar Index could pressure oil prices.

However, an improving economy outside the US could see the US Dollar Index lag compared to its peers. Other major central banks could also increase interest rates in 2018, which could support other currencies against the dollar.

Next, we’ll discuss crude oil supply outages in Libya.

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