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What Rising Oil Prices Could Do to the Dollar

Monday, 27 Feb 2012 | 12:14 PM ET
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Oil prices are on a roll, and this strategist thinks its bad news for the buck.

Notice that extra dent in your wallet when you put gas in the car? Oil prices have been rising, and Marc Chandler, chief currency strategist at Brown Brothers Harriman, sees currency implications.

Chandler argues that for once, there are plenty of real reasons - not just politics - behind oil's rise. Supply from Sudan, Syria, and Yemen is down sharply thanks to political instability, and that's not even counting the reduced flow from Libya and Iran.

Meanwhile, Japan is increasing oil purchases in place of nuclear fuel, and the unusual cold in Europe may be fueling demand as well.

None of this is good for the dollar since it could lead to a policy move by Federal Reserve Chairman Ben Bernanke, Chandler wrote in a note to clients. "The risks of a new round of Federal Reserve asset purchases would seem to increase with the price of oil," he says, which would put downward pressure on interest rates - and the buck. "It is possible that the rise in oil prices serves the new form of the Bernanke [Greenspan] put."

Bernanke will be testifying before Congress on Wednesday and Thursday and could face plenty of questions on oil prices. Stay tuned.

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