The Fed/Dollar/Oil Menage a Trois

More evidence of the outsized impact that traders have on the financial world and, as a result, the lives of billions of people on the planet, comes via recent developments in the U.S. economy, signals from the Fed, the trade-weighted dollar, and energy prices.

Yesterday’s stinker of a GDP report and the recent central bank caution about raising interest rates compelled traders to hit the sell button on their U.S. dollar positions and the greenback went tumbling from its recent perch, a trend that seems likely to continue.

Of course, energy traders saw the falling dollar and hit the buy button on oil futures so, now, all of a sudden bottom-calling for  crude oil prices is back in fashion.

Obviously, there are other important factors involved in the 50 percent plunge in oil prices since last summer (i.e., shale oil, Saudi policy), but the 25 percent strengthening of the U.S. currency was a big factor as commodity traders are like Pavlov’s dogs when it comes to the value of the world’s reserve currency relative to its freely traded rivals.