In recent years, the dollar has been in a free fall against other major world currencies. Against the Euro, when plotted on a chart, it has trended downward for nine years and since April 2006, it has been in a steep decline. Consequentially, there are those that have been screaming for government policies that would strengthen the dollar while sometimes referring to the dollar as the U.S. Peso.

Well while the dollar is still sitting at multi-year lows, it has staged a very impressive rally in the last three weeks and proponent of a strong U.S. dollar now get to see whether their theories hold true.

Of late, a weak dollar, especially when coupled with the weakening U.S. economy, has been a very good thing. A lot of U.S. multi-national companies that reported good earnings in the most recent reporting period, in a round about way, credited the weak dollar.

They reported that while domestic sales were slumping, exports and overseas sales by their foreign subsidiaries where strong as the weaker dollar made better quality U.S. goods cheaper. Besides helping exporting companies’ bottom line, increased U.S. exports also improves our economy by lowering our ever-growing trade deficit.

The positives of a strong dollar cannot however be overlooked. While technicals and too fast a climb does play a role in the recent weakening in oil prices, the strengthening dollar also plays a major part and this would probably be a point that would be underscored by advocates for a strong dollar.

Then again, lest we forget, there are all sorts of signs that shows that higher oil prices does in fact temper demand for oil derived products such as gasoline, which would cause and does cause the price of oil to fall.

Americans in the past three months, have been buying less and less gasoline, and recent reports out of China shows that imports of oil, dropped by about 7%. Considering that China which has played a part in the increase of oil prices due to their expanding economy and growing need for oil, imported 1.1 billion barrels last year, that is significant enough to have an effect on crude oil pricing.

While oil prices in regular trading today, might end up to the upside, they are currently falling in extended hours trading, on concerns that the U.S. economy is continuing to weaken, another proof that regardless of where the dollar trades, oil prices would at some point, weaken.

dollar oil us economy