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Oil Prices, US Dollar & Inflation

Source: OPEC 9/30/2012, Location: Europe

After more than two months of relative strength, the US-dollar started to weaken in August against the major currencies. On a monthly average it fell by 1.0% versus the euro and the Swiss franc and lost 0.8% compared to the pound sterling and 0.5% versus the yen. This slight weakness should not be exaggerated as it seems to be a technical correction after several weeks of steady rise. Over the last six months, i.e. since February, the dollar gained 6.2% versus the euro and the Swiss franc, 0.6% compared to the pound sterling, and 0.4% versus the yen. The euro has held up very well, particularly since the beginning of September, and even more so after the most recent announcement by the ECB to buy unlimited peripheral sovereign bonds to stabilize financial markets and bring down the debt burden for ailing economies.

Thus, it remains to be seen whether these relatively bold actions will be successful or if the decelerating trend versus the US dollar will start again. It averaged $1.2399/€ in August and moved up in September to even $1.28/€, but depending on the further development of the Euro-zone sovereign debt crisis, it is still likely that it will touch down back to the $1.20/€ level, which is the support line at the lower end of the current trading band. In the recent development of the yen, the Japanese currency remained strong versus the US dollar, trading below the critical ¥80/$ level, with the yen strengthening again in August.

The Bank of Japan (BoJ) seems not to have significantly intervened in the currency markets lately, although the yen has been trading at this relatively high and for exports hurtful level since the beginning of May.

In nominal terms, the OPEC Reference Basket rose by $9.97/b or 10.0% from $99.55/b in July to $109.52/b in August. In real terms, after accounting for inflation and currency fluctuations, the Basket price rose by 9.4% or $5.90/b to $68.82/b from $62.91/b (base June 2001=100). Over the same period, the US dollar fell by 0.7% against the import-weighted modified Geneva I + US dollar basket while inflation fell by 0.1%.

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