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Strong Dollar Keeps Lid On Oil Price Rally

U.S. West Texas Intermediate crude oil futures are edging lower on Friday, giving back some of this week’s earlier gains.

The market is being pressured by the strengthening U.S. Dollar, which is making the dollar-denominated asset more expensive for foreign buyers, the easing of concerns over potential storm damage from Hurricane Nicholas and profit-taking after steep five day rally.

Traders seem to be shrugging off IEA and OPEC forecasts calling for a jump in future demand after pricing in this news earlier in the week, but this news is expected to be supportive over the longer-term.

Stronger US Dollar Could Weigh on Foreign Demand as Investors Await Fed Taper Decision

The dollar climbed to the higher end of recent ranges against other major currencies on Thursday, as traders looked to next week’s Federal Reserve policy meeting for indications on how soon the U.S. central bank will start to taper stimulus.

The Federal Open Market Committee’s (FOMC) two-day policy meeting ending September 22 should provide some clarity on the outlook for both tapering and eventual rate hikes.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. The stronger dollar could weigh on foreign demand for U.S. crude. Tapering also means the central bank will be buying fewer debt assets, in effect reducing the amount of dollars in circulation, which in turn lifts the currency’s value.


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