Transcripts

The Greenback Shows Some Gusto As Oil Prices Slide

SUSIE GHARIB: Oil prices dropped sharply today, briefly trading below $140 a barrel. By the close of New York trading, August crude futures fell $3.92 or 3 percent to $141.37. The sell-off came as officials in Iran made conciliatory comments about the country's nuclear ambitions while those lower crude prices encouraged dollar traders in currency markets. The U.S. dollar surged in early trading today, but then declined against major currencies late this afternoon. Scott Gurvey has more on the outlook for America's greenback.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The battered American dollar has found some firmer footing in recent days following an indication from the European central bank that it does not intend to raise interest rates a lot in the months ahead. World leaders at the G-8 meeting in Japan are expected to express a desire to see the dollar strengthen further and to call on the Federal Reserve to boost American interest rates to help make that happen. Meeting yesterday with the Japanese prime minister, President Bush said the U.S. believes in a strong dollar policy. But currency strategists, such as Meg Brown of Brown Brothers Harriman, say they do not expect to see a much stronger dollar any time soon.

MEG BROWNE, SR. CURRENCY STRATEGIST, BROWN BROTHERS HARRIMAN: The Fed, yes, it's shifted to a rate hiking stance, but the U.S. economy is still fairly subdued. It's growing, it's picking up, but it's still at below trend growth. The Euro zone economy is beginning to come lower, but we really need a bigger shift in order for intervention to work. The market has to believe that the euro has peaked and it doesn't yet.

GURVEY: What the markets do expect is a wide trading range for the dollar, particularly against the euro, as the cloudy economic picture unfolds in both regions. Adding to the uncertainty is the fact that the relative value of the dollar and the price of oil have become tightly linked. That's because energy contracts are denominated in dollars. As energy prices move in response to geopolitical events, the dollar tends to move in the opposite direction. Strategist Michael Woolfolk of Bank of New York Mellon says the combination of high prices and sluggish growth puts the Federal Reserve in a difficult situation.

MICHAEL WOOLFOLK, SR. CURRENCY STRATEGIST, BANK OF NEW YORK MELLON: The Fed would have very little alternative but to try to head off the rise in inflationary expectations, which would further cripple growth here in the states. The higher interest rates, however, would be looked upon favorably with respect to the U.S. dollar.

GURVEY: Lower U.S. growth would also mean lower growth worldwide, which in turn would reduce the demand for commodities, resulting in lower prices. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.