Dollar recovers on oil price falls; focus turns to inflation figures

Thomson Financial
Wednesday, July 16, 2008

The dollar was steady on Wednesday, recovering after falling to a record low the previous day, as falling oil prices helped offset ongoing gloom about the U.S. mortgage sector.

The price of crude oil fell by around $10 on Tuesday, the biggest fall in dollar terms in a single day for 17 years, providing the U.S. currency with some respite after taking a battering earlier in the day.

'Oil's almost $10 dive reversed Friday's equally swift rise, reducing equity market and dollar weakness in the process,' said Gavin Friend, currency strategist at Commerzbank.

Analysts said part of the reason for oil's sharp price drop was the gloomy economic outlook provided by U.S. Federal Reserve Chairman Ben Bernanke at his semiannual testimony to the Senate on Tuesday. Bernanke had a more dovish tone than markets were expecting, noting there were 'significant downside risks' to growth.

The Fed chairman stressed the central bank's main priority is to help financial markets return to normal, undermining expectations it will hike interest rates sometime soon.

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