Dollar Slips as Oil Prices Menace Economy

Thu Sep 23, 2004
By John Parry

NEW YORK (Reuters) - Rising oil prices seized center stage in currency markets on Thursday, initially taking a toll on the yen and then weighing somewhat on the dollar in a tentative currency market seeking catalysts to trade off.

The United States is the world's largest net importer of oil, leaving the dollar exposed should higher prices crimp growth in the world's biggest economy. Yet the yen is even more vulnerable because Japan imports all of its oil. Asia, overall, is heavily dependent on imported energy.

In the United States, "Initially, higher oil prices are U.S. dollar negative as it hits sentiment, spending and ultimately economic growth," wrote Michael Woolfolk, senior currency strategist with the Bank of New York in a research note on Thursday.

Midafternoon in New York, the euro was up about 0.4 percent at $1.2317(EUR=: Quote, Profile, Research) .

Against the yen, the dollar retreated from a fresh five-week high against the yen and was trading down 0.1 percent at 110.42 yen (JPY=: Quote, Profile, Research) .

Against the Swiss franc, the dollar was down 0.3 percent at 1.2557 francs (CHF=: Quote, Profile, Research) .

Sterling was up 0.4 percent at $1.8014 (GBP=: Quote, Profile, Research) .

The euro climbed to a five-week high of 136.51 yen (EURJPY=: Quote, Profile, Research) , but traded back down to 135.98 yen.

U.S. oil futures (CLc1: Quote, Profile, Research) traded near $49 per barrel. High oil prices had weighed on Asian markets overnight, pulling the yen lower.

But in the U.S. trading session, the dollar started to come under pressure because of some questions about the U.S. economic outlook given high energy costs.

"(Federal Reserve Chairman Alan) Greenspan believes that higher energy prices will be transitory. This is being called into question as crude oil prices return again to record high territory," Woolfolk added.

Earlier, the dollar traded steadily steady after news that the number of U.S. first-time jobless claims rose to 350,000 in the week ended Sept. 18 from 336,000 a week earlier. Forecasts had called for claims to total 340,000.
"The initial reaction was to sell off some dollars, but now we're back where we were when the numbers came out," said John Hazleton, director of foreign exchange at PNC Bank in Pittsburgh. "I don't think the dollar can take any direction from that."

The Australian dollar was one of the biggest movers, gaining 1 percent to US$0.7145 (AUD=: Quote, Profile, Research) .

"Commodity currencies," whose economic fortunes are perceived to be linked to commodity price changes, include the Canadian, New Zealand and Australian dollars.

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