US dollar slips on low oil prices

[NEW YORK] The US dollar weakened on Tuesday as falling oil prices renewed low inflation concerns ahead of the Federal Reserve's interest rate decision next week.

Benchmark oil prices sank to fresh 2009 lows for the second straight session amid a commodity rout that rattled US and European equity markets.

The dollar fell to US$1.0892 per euro around 2200 GMT from US$1.0835 at the same time Monday.

Most analysts and investors expect the Fed will raise its benchmark federal funds rate on December 16 from near zero, where it has been pegged since December 2008 to underpin the economy's recovery from the Great Recession.

"The statement accompanying the rate decision may produce near-term headwinds for the US dollar should the central bank largely endorse a wait-and-see approach for 2016," said David Song, currency analyst at DailyFX.

"Weak energy prices accompanied by the disinflationary environment across the major industrialised economies may become a greater concern for the central bank doves and spur a heavily split vote to raise borrowing-costs for the first time in nearly a decade."

Fed Chair Janet Yellen and the policy-setting Federal Open Market Committee have long said that tepid US inflation was due to transitory factors such as low oil prices, and that inflation was expected to move back toward the Fed's 2.0 per cent target for price stability.

Ryan Sweet of Moody's Analytics took an upbeat view on sinking oil prices.

"From the Federal Reserve's perspective, we believe the lift to GDP growth from lower oil prices would trump the downward pressure on inflation, keeping the central bank on track to raise rates further next year," Mr Sweet said.

AFP