USD Tumbles on Surging Oil Prices; Concerns of EU Interest Rate Outlook

The U.S. Dollar suffered its biggest single session plunge in over a month against the Euro. The Euro rallied after a German government adviser said that European Central Bank policy makers may raise interest rates as soon as the financial crisis ends. Also boosting the Euro, German Producer Price inflation accelerated to the fastest pace in nearly two years which makes interest rate cuts less likely.

Meanwhile, oil prices broke USD 129.00 a barrel, a new record. The oil rally was precipitated by hedge-fund manager and legendary oilman Boone Pickens who foresees oil reaching USD 150.00 a barrel this year. This led to anxiety about the strength of the global economy and the resultant heightened levels of risk aversion prompted an unwinding of carry trades, which helped the Japanese yen rally against the U.S. Dollar.

The Australian Dollar rose to its highest levels against the U.S. Dollar since 1984. The Aussie Dollar’s latest surge was triggered by the release of the minutes from the most recent Reserve Bank meeting. Central bank policy makers discussed the possibility of raising interest rates at length during the May 6 meeting, and still worry that inflation in Australia is “uncomfortably high”. The revelation that the central bankers are still biased towards tighter monetary policy drove the currency higher for the fourth consecutive day.