OIL TOPS $115 AS U.S. DOLLAR NEARS $1.60 PER EURO

Oil traded at over $115 per barrel yesterday and early today as the U.S. dollar sank to nearly $1.60 per euro. Some are $3.80 per gallon retail for gasoline in the near future.

From AP via MSNBC:

Crude oil futures fluctuated Thursday after moving past $115 per barrel and hitting an all-time high in overnight electronic trading on a weaker dollar and supply concerns.

Overall, crude prices have jumped more than 4 percent this week, in part due to the falling dollar, as well as a host of supply and demand concerns in the U.S. and abroad.

The combination of all these factors will push oil prices even higher in coming weeks, said James Cordier, president of Tampa, Florida, trading firms Liberty Trading Group and OptionSellers.com.

"I think we're going at least to $125 (per barrel)," Cordier said. "That'll probably translate to about $3.80 (a gallon for gasoline) at the pump."

U.S. DOLLAR AT $1.5779 PER EURO, EXPECTED TO WEAKEN FURTHER

The U.S. dollar traded at $1.5779 in late trading today and some are expecting it to fall past $1.60 if the Federal Reserve lowers interest rates at the April 30th meeting. The Fed is widely expected to lower rates at least a quarter of a point and perhaps a half point or more at that meeting, or perhaps even before, in an effort to use monetary policy to stimulate the economy. So far this year, the dollar has fallen by 7.5% against the euro.

U.S. DOLLAR HITS NEW LOW VERSUS EURO

The dollar weakened further Thursday, hitting a new low of $1.5644 to the euro. In addition, Venezuela appears to be experimenting with requiring that payments for oil be made in euros instead of dollars. If this were to catch on and spread to other OPEC nations, demand for the dollar would plummet, causing accelerated weakening of the dollar and further strengthening the euro.

From Reuters:

The dollar extended losses late on Thursday, hitting fresh record lows against the euro, in selling driven by technical factors.

The euro rose to $1.5644 against the dollar for the first time since it was launched, according to Reuters data. It last traded at $1.5627.

Late on Thursday, Reuters reported that Venezuelan state oil company PDVSA is requiring payment in euros in a recently opened fuel export contract, citing a trader who has purchased a cargo under the contract.

U.S. DOLLAR EROSION PUSHES EURO TO THE FOREFRONT

From USA Today:

Despite squeals of pain from European exporters, the strength of the euro is fast propelling Europe's single currency into a juggernaut.

Currency traders from Egyptian street hawkers to Asian central banks are looking to the euro as a better store of value as the U.S. dollar erodes. The shared 13-nation currency hit $1.4966 on Friday, another record high against the once steadfast dollar.

As well as being the world's currency of choice in central bank reserves, the dollar has long been the de facto second currency in street markets and on tourist menus around the world.

Today, market traders in Luxor — site of the ancient Egyptian city of Thebes — snub dollars in favor of euros or local currency. In Russia, shops, restaurants and hotels that once listed prices in the mighty dollar rather than the unstable ruble have increasingly pegged prices to the euro.

While these trends are unlikely to perturb currency markets, concern is growing that foreign investors may start dumping their dollar-holdings. In particular, traders are watching China's central bank for changes in its portfolio.

Most of China's $1.43 trillion reserves are in dollar-denominated assets such as U.S. Treasuries, and officials aren't happy about the U.S. currency's decline. Zhou Xiaochuan, head of China's central bank, urged U.S. Treasury Secretary Henry Paulson on Thursday to boost the dollar, according to the Xinhua government news agency.

The euro — introduced to financial markets in 1999 and in notes and coins form in 2002 — has risen as a share of global official reserves from 17.9% in 1999 to 25.8% in 2006, according to the International Monetary Fund. In the same period the dollar's share has fallen from 71% to 64.8%

EUROPEANS FLOCK TO U.S. FOR CHRISTMAS SHOPPING

From USA Today:

Record numbers of Europeans are flocking to New York this fall — prime holiday shopping season — as the dollar sinks to new lows against the euro and British pound.

New York expects roughly 1 million western Europeans this month and December, 5% more than last year, says George Fertitta, CEO of tourism agency NYC & Co. Helping to boost Big Apple tourism: killer deals on merchandise because of an exchange rate that favors euros and pounds.

"A new class of Europeans are coming to America totally because of currency," says George Malkemus, president of luxury shoe retailer Manolo Blahnik USA.

Malkemus says he's selling more shoes from his Manhattan store than ever to Europeans despite there also being a London store. Shoppers can pay $600 for a pair of shoes that in London would cost the equivalent of $823.

Last week, the dollar sank to its lowest level ever against the euro, and to its lowest level against the pound in 26 years. One euro is worth $1.47. One pound is worth $2.06.

Foreigners also are snapping up U.S. real estate and could target U.S. companies if the dollar continues to erode, says Omer Esiner, a market analyst at currency trader Ruesch International.

SOME EUROPEANS FEAR POSSIBLE DOWNSIDE OF A STRONG EURO

From The New York Times:

Fears of an abrupt economic slowdown in Europe deepened on Friday, after the release of weaker-than-expected data and another record in the euro’s relentless rise against the dollar.

Europe’s stampeding currency prompted a warning from the plane maker Airbus that it might have to cut costs more deeply than expected to restore its troubled operations to financial health.

“If the euro remained durably at $1.45, that would mean we have to find 1 billion euros in additional savings,” Fabrice Brégier, the chief operating officer, said in an interview with a French radio station. The euro briefly traded at $1.41 on Friday morning before falling back slightly. It was at $1.4091 in late trading in New York.

Most European exporters have weathered the rally without complaint, having cut costs and hedged their exposure, either financially or by moving production to countries that do not use the euro.

But a noisy minority is starting to agitate, and political leaders, notably in France, have picked up their concerns, lobbying the European Central Bank to take steps to stem the euro’s appreciation.

“We hope the E.C.B., at its meeting in October, will examine the consequences and take appropriate action,” the French finance minister, Christine Lagarde, said during a visit to China on Friday.

Airbus is particularly vulnerable because it earns all its revenue in dollars and incurs about half of its operating costs in euros. That puts it at a big disadvantage to its American rival, Boeing.

Under its existing plan, Airbus plans to cut 2 billion euros ($2.8 billion) a year in costs by 2010, through the sale of several factories and the elimination of 10,000 jobs. In his radio interview, Mr. Brégier said the cost-cutting plan was predicated on a euro exchange rate of $1.35.

OIL TOPS $82 PER BARREL

You can check the current price by clicking here.

From USA Today:

Oil futures rose to records Tuesday after the Federal Reserve cut interest rates by a larger-than-expected half percentage point, raising market hopes that economic growth will accelerate and lift demand even as crude oil and gasoline inventories are tight.

A barrel of crude surged to a new trading high of $81.90 on the New York Mercantile Exchange in the moments immediately after the Fed's decision.

Investors had already priced a quarter-point cut in the benchmark federal funds rate into the market, said Brad Samples, a commodities analyst at Summit Energy Services in Louisville The half-point cut spurred even more buying.

Moreover, many analysts see a weaker dollar as a natural side effect of lower rates, and that could promote buying of oil contracts by foreign investors.

"Lower interest rates have the unintended consequence of raising oil prices if the dollar declines relative to other currencies," said Larry Chorn, chief economist at Platts, the energy research arm of McGraw-Hill, in a statement.

"Seen through a euro or yen prism, nominal (New York Mercantile Exchange crude) prices have yet to reach their 2006 highs," said Antoine Halff, head of energy research at Fimat USA, in a research note.

IS THE U.S. DOLLAR IN SERIOUS TROUBLE?

From the International Herald Tribune:

Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.

But for longer than most economists would have been willing to predict a decade ago, the world has been a willing partner in American excess - until a new and home-grown financial crisis this summer rattled confidence in the country, the world's largest economy.

On Thursday, the dollar briefly fell to another low against the euro of $1.3927, as a slow decline that has been under way for months picked up steam this past week.

"This is all pointing to a greatly increased risk of a fast unwinding of the U.S. current account deficit and a serious decline of the dollar," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and an expert on exchange rates. "We could finally see the big kahuna hit."

So long as Americans buy more than they earn from exports - and they did, creating a current account deficit of $850 billion last year - the rest of the world financed the binge by bringing dollars into the United States for investment in stocks, bonds, real estate or other assets, thereby preserving demand for the dollar.

While most economists just a few months ago would have dismissed the prospect of a dollar collapse outright, they now are debating the possibility that something on par with the dollar debacle of the 1970s might just happen again.

When a currency collapses, the central bank can push up interest rates to attract needed investment, but strangle the economy in the process. Alternatively, it can let the currency fall and watch prices of imports - and eventually competing domestic goods - rise sharply.

Double-digit inflation resulted in the 1970s and only a global recession brought it to an end.

The European Central Bank put off an interest rate increase it had planned for September, but is still inclined to tighten credit at least one more time by the end of this year. By contrast, the U.S. Federal Reserve has hinted at a rate cut at its meeting next Tuesday - a step that would diminish the appeal of dollar-denominated assets, almost certainly sending the dollar lower.

Pressed to make an educated guess, most economists opt for calm, believing the dollar is unlikely to go into a tailspin even as they mark up the odds of one.

The major holders of dollars - notably the Chinese, with their $1.3 trillion in currency reserves - have little incentive to see the dollar weaken, and their support provides the dollar with a bulwark of strength. And since investors need to stay diversified, and U.S. markets are deep and liquid, abandoning the dollar wholesale is hardly a realistic option.

"Rather than a precipitous decline, we are probably be looking at a move steadily lower," said Simon Derrick, chief currency strategist at Bank of New York in London.

WEAK DOLLAR VERSUS EURO CAUSES DECLINE IN GERMAN CAR SALES

Remember, a weak dollar causes imported foreign goods to be more expensive for those using the dollar to make purchases, while U.S.-made goods exported to other countries, in this case Germany, a user of the Euro, are less expensive to those using the Euro.

From The New York Times:

This year, the dollar was down about 6 percent against the euro, which damaged German car sales in this country. Its auto trade surplus with the United States fell 30 percent.

The declining American trade deficit for the auto industry does not mean that this country is anywhere close to reaching a balance in the sector. During the second quarter, the United States imported $1.90 in automobiles and parts for every dollar of such goods it exported. That is the lowest ratio since 1998 and is down from $2.27 in the 2006 period. It is way below the record ratio of $4.22, reached in 1989.

But it still means that it would take a 31 percent increase in American auto exports, and a similar decrease in imports, to produce a balance in auto trade. That would require a much lower dollar — and a much weaker American economy.