Oil tumbles as dollar strengthens on Fed move | Inquirer Business

Oil tumbles as dollar strengthens on Fed move

/ 12:38 PM September 22, 2011

SINGAPORE — Oil tumbled in Asian trade Thursday on a stronger dollar as investors flocked to the safe-haven currency after the US central bank warned of significant downside risks to the American economy.

A strong greenback makes dollar-priced crude more expensive to holders of other currencies, softening demand and leading to lower prices.

New York’s main contract, West Texas Intermediate for November delivery, was down $1.21 at $84.71 a barrel in morning Asian trade, and Brent North Sea crude for November dropped $1.26 to 109.10.

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The US Federal Reserve, after a two-day meeting Wednesday, unveiled a $400 billion dollar stimulus plan reduce long-term interest rates but investors chose to focus on its warning about the outlook for the world’s biggest economy and oil consumer.

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In announcing the new measures, the Fed painted a grim picture of the economy, strapped with slow growth, high unemployment and a depressed housing market.

“There are significant downside risks to the economic outlook, including strains in global financial markets,” the central bank’s Federal Open Market Committee warned in a statement.

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The Fed stimulus plan did little to buoy the markets, as US stocks dived and the dollar surged – an indication investors were once again flocking to the currency considered a safe bet in times of crisis.

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Chen Xin Yi, a commodities analyst at Barclays Capital in Singapore, said the Fed’s statement about significant downside risks “contributed to some risk aversion” in the market.

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“The big question is whether this latest action will accomplish anything? Frankly, we doubt it,” said Paul Ashworth, the chief US economist at research house Capital Economics.

Investors were also digesting a series of downgrades by Moody’s on three top US banks — Bank of America, Wells Fargo and Citigroup — saying it saw the US government less willing than before to rescue them if they become unstable.

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TAGS: dollar, Foreign Exchange, oil, oil prices, US Federal Reserve

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