Some of the explanations for the dollar jump rely upon the perceived weakness in the dollar's value (and hence, by extension, Fed policy). Does this make sense? As I've remarked before [1], there is likely two way causality between the dollar's value and the price of oil denominated in dollars. One way of taking out some of the numeraire issue is to see how a price of a barrel of oil would be, expressed in other currencies. In the figure below, I compare the dollar price against that in euros, and against that in the Special Drawing Rights (SDR). Figure 1: Price ber barrel of oil (WTI), in USD (blue), in SDR (red), and in EUR (green). Squares indicate values for June 6. NBER defined recession dates shaded gray. Sources: St. Louis Fed FREDII; IMF International Financial Statistics; Pacific Exchange Services; and author's calculations. The weights for the USD, EUR, ...

In a speech this morning at an international monetary conference in Spain, Fed Chairman Ben Bernanke took the unusual step of speaking out on the dollar saying that the central bank is “attentive” to the weak U.S. dollar and that it has contributed to an “unwelcome rise” in inflation. He went on to say that over time, Fed policy will be a key factor “ensuring that the dollar remains a strong, stable currency.”For some reason the markets were surprised by this. I wasn’t. What else did they expect him to say? That he supports a weak dollar? Of course not. Central bankers can talk about how they are going to control inflation, and not let it get out of hand, but their actions will be entirely different. Regardless of what Bernanke says, our own Federal Reserve wants the dollar pushed lower and as much asset inflation as possible because it’s …