The fizz experienced at the opening part of yesterday in oil prices sadly, and in line with recent performances, fizzled out. While the increased OPEC barrels for the future were ignored, being deemed lowly in importance compared with aggressive language surrounding Russia from Donald Trump, once again a lack of substance to the chat and no further utterances brought the prospect of oversupply back in mind. Such thoughts were given realism from Saudi Arabia as later in the day the Kingdom lowered its October official selling price (OSP) to both Asia and North-West Europe. Oil prices will likely be caught in this cycle of dithering until something becomes concrete from meetings involving the European Union’s sanction officials and their Washington counterparts in the US capital as discussions continue. Politics continues in being able to run roughshod over fundamental considerations, and frustratingly, sometimes not.

This is also true of the wider macro suite, initial moves in foreign exchange and stock markets after the day saw Prime Ministerial changes in Japan and France were later made largely moot. There is a fixation on US interest rates, with the horizon filled with the US CPI and PPI readings this week and how they might affect the Federal Reserve’s considerations. Even with an underlying view that a looser monetary future awaits, the US bourses, which lead all others, found themselves a little stifled. In the New York Fed Survey of Consumer Expectations, something of a dichotomy for those that expect an easy path for the FED to cut interest rates was revealed. Indeed, expectation for employment decreased sharply, but what throws something of a spanner in the works is that the survey indicated people expecting an increase in inflation. Newsfeeds have become as live market screens, but instead of numbers there are words, and none can be ignored.

The US Dollar is never out of date

There is a reactional twitch being witness in markets directly affected by the US Dollar and are mainly to the upside. The imminent cut in interest rates is not only freeing up constrained worriers of debt burden, but also those that have been cowed by any sort of strength in the American currency. Gold is always an obliging vehicle to wheel out when making a dollar argument, but it would be disingenuous to claim that all of its glitter lay at the feet of the dollar’s weakness. However, Gold’s forty percent rally this year and the ten percent dive by the US Dollar Index (DXY) is no departure from correlation, it is an arrival of a new set of parameters which will only make sense in hindsight. There is little doubt that August’s five percent rally in Gold owes all to the nearly one percent fall in the DXY and the continued higher pricing in predictive interest rate tools of a US Federal Reserve cut. 

So much of the FED’s own parsing has been revolved around employment data and despite the manhandling of the makeup of its board and any possible reactive disinclination in obliging a deeply critical US President who seeks interest rate cuts no matter the data; even the most hawkish naysayer cannot now resist the inevitable. One might assume the succession of softer readings in the US jobs market last week represents the beginning of a trend. July Jolts Job Openings missed its call by over two-hundred thousand, August Challenger Job Cuts increased by over twenty thousand, the ADP National Employment in August fell by ten-thousand and Initial Jobless Claims and its four-week average both increased. Even though the ISM Manufacturing Employment index increased in August from 43.40 in July to 43.80, it is still a shabby reading compared with December 2024’s tick of 50.3 which represented the average for well over half of a century. There are now more out of work people than there are job opportunities, a situation not seen since the throes of the pandemic. 

This all makes perfect sense for a declining price, but there does seem to be something else lacking in the vitality of the globe’s marker currency. There are now quite loud voices questioning whether the dollar is as safe haven as it once was. Dollar doubters gather round this opinion by using the performance of the DXY during the fallout from the announcement in April of President Trump’s tariff ‘Liberation Day’. As a Reuters opinion piece observes, “the S&P 500 fell by as much as 20 percent, the dollar index dropped 8 percent, prompting some soul-searching among investors and a wave of hedging. In turn, the U.S. currency recorded its worst January to June performance in the entire floating exchange rate era that began in 1973.” Not so much then a safety haven, but a ‘sometimes’ haven or a ‘maybe’ haven depending on what weighting is held in other flight vehicles. 

There have always been conjectural writings on the longevity of the US Dollar. Given that our world is riven with speculation be it political, commercial or any other fly-by-night opinion, the importance of the US Dollar is a magnet for scrutiny. History suggests that its ‘exceptionalism’ will prevail, despite the drive for de-dollarisation from those that claim to be wronged by a Western dominated system. But it does not mean prudence ought to be deployed when, as is now, the world’s moolah falls out of favour. Pressures abound. US debt and the political interference in a supposedly independent central bank brings reduced confidence. If the future sees a ‘Trumper’ holding sway at the FED, the disparity between the US current rate of 4.5 percent and Peoples Bank of China’s 3 percent 1-Year Loan Prime Rate, the European Central Bank’s 2-2.4 percent key interest rates and Bank of Japan’s half of one percent short-term rate will quickly be narrowed. Not only does the current Administration seek tariff payback for subsidised US bound goods it is looking to undo the work it claims being undertaken by competing nations that insist on devaluing local currencies.

Oil can hitch its horses to a lighter forex burden as with all other tangible assets, and it has been quite some time since a weaker greenback aiding the black stuff has seen much of an outing in things narratively to be bullish over. How long our fraternity can rely on a receding dollar has to be given the same answer as all the other million-dollar questions that face our collective every day. Who knows? However, we can only trade and comment on what is in front of us, and if a failing US Dollar is part of the market make up for at least a mentionable time, oil values have rediscovered a very old-fashioned useful prop.

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