In early deals on Friday, the US dollar soared to a 2-week high against the euro, kicking off 2009 on a positive note, as the crude oil prices fell below $42 a barrel today, extending its worst yearly drop, on concern that a global economic contraction will limit fuel demand. The dollar also strengthened to a 1-week high against the franc and an 8-day high against the yen.
Crude oil for February delivery dropped as much as $3.10, or 7 percent, to $41.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
Oil fell 54 percent in 2008, the first annual decline since 2001 and the biggest drop since futures trading started in 1983.
Fuel consumption in the U.S., the world's biggest economy, was down 3.7 percent during the four weeks ended December 26 from a year earlier, according to the Department of Energy.
Oil has gained 14 percent earlier this week amid geopolitical turmoil in the Middle East and Europe. Israel killed a Hamas leader in its assault on the Gaza Strip and Foreign Minister Tzipi Livni said her nation would keep applying pressure on the militant Islamic group.
Gold declined today as the crude oil slipped and the dollar strengthened, reducing demand for the precious metal as a hedge against inflation and an alternative asset. The relationship between gold and oil has steadily strengthened as the commodity boom has progressed.
The credit crunch had a more direct impact on commodity markets as investment banks radically limited the availability of credit to hedge funds which forced them to reduce long positions.
U.S. stocks plunged the most in 2008 since the Great Depression as financial shares collapsed, energy and metal producers tumbled and the world's biggest economy suffered a yearlong recession.
The US dollar, which closed Wednesday's trading at 1.0702 against the Swiss franc jumped to 1.0779 during early deals on Friday. This set the highest point for the dollar since last Friday. On the upside, 1.09 is seen as the next target level for the dollar-franc pair.
The dollar-franc pair has advanced 22% to reach a 17-month high of 1.2301 on November 21, 2008, from a record low of 0.9637 hit on March 17. The dollar benefited as US investors repatriated funds amid the turmoil and as speculators liquidated positions in higher-yielding assets, especially in emerging markets, that had previously been funded by selling the dollar.
As the turmoil gripped global markets, investors fled from emerging markets. This first hit the currencies of country's sporting current account deficits amid heightened funding concerns.
But the dollar lost around 16% in December on an aggressive interest rate cut by the Federal Reserve and hit a 5-month low of 1.0371 on December 29. However, the US currency recovered this week and it has gained 4% thus far.
On December 16, the Federal Reserve's Monetary Policy Committee decided to cut interest rates by 75 basis points to 0.25 %, bringing the target to its lowest level in over 50 years, in order to boost the U.S. economy.
The Federal Reserve has slashed the funds rate to range between 0.00% and 0.25% to combat recession, starting a new phase for economic policy, keeping rates "exceptionally low" and with lending programs financed by the Fed's ballooning balance sheet. The highly unusual move of establishing a target range comes as U.S. policymakers face the most severe economic crisis since the Great Depression.
The Committee has approved the rate cut in order to ease credit conditions, as employment, consumer spending and industrial production have deteriorated considerably since the last monetary policy meeting, while inflationary pressures have diminished appreciably.
The federal funds rate has been cut 500 basis points since August 2007, when the collapse of the housing and subprime mortgage markets touched off a ripple effect that has thrust the economy into its worst financial crisis since the Great Depression.
During early deals on Friday, the dollar jumped to a 2-week high of 1.3839 against the European currency. This may be compared to Wednesday's New York session close of 1.3971. If the dollar gains further, it is likely to target the 1.363 level.
The euro slumped on prospects the European Central Bank will lower interest rates to revive economic growth. The ECB cut its benchmark interest rate by 1.75 percentage points since October to 2.50 percent, the first reductions since June 2003.
Policy makers are cutting borrowing costs to spur spending after a seizure in global credit markets helped trigger the euro region's first recession in 15 years.
The dollar has tumbled 9% earlier this year and touched a record low of 1.6040 against the euro on July 15. Thereafter, the dollar bounced back and gained nearly 23% to hit a 2-1/2 -year high of 1.2329 on October 28. Although the dollar weakened 16% thereafter, it rebounded after hitting a 3-month low of 1.4720 on December 18.
The dollar advanced against the yen in early trading on Friday. At about 2:30 am ET, the dollar-yen pair reached an 8-day high of 91.32, compared to Wednesday's closing value of 90.70. The next upside target for the dollar is seen around the 93 level.
The yen was the best performer in 2008 as the financial crisis prompted a dramatic unwinding of the carry trade, in which low-yielding currencies such as the yen are sold to finance the purchase of riskier, higher-yielding assets elsewhere.
For the first time in 12 years, the dollar slipped below 100 yen on March 17, 2008 and hit as low as 99.30. Although the dollar has soared 10% thereafter, it dropped again after reaching a 7-1/2 -month high of 110.69 on August 15. The dollar-yen pair breached the long-term support of 99.3 on October 24 and extended its downtrend in the subsequent months.
Finance ministers and central bankers from the Group of Seven industrialized nations issued an emergency statement on October 27 highlighting their "concern about the recent volatility in the exchange rate of the yen."
Even so, domestic investors increasingly pulled money out of overseas positions, contributing to the greenback falling to a 13-year low of 87.14 on December 17. Since then, the dollar-yen pair has been in an upward channel and surged 4%.
Japan Prime Minister Taro Aso said today he would work to help Japan become the first nation to lift itself out of the worldwide recession. "Japan will be the first country in the world to get out of this recession," Aso said in his New Year message. "Japan and the Japanese people should have more confidence. As we have done in the past, Japan can turn difficulty into opportunity."
The dollar reversed direction against the pound after falling to a 1-week low of 1.4833 by about 5:35 pm ET Thursday. The pound-dollar pair that closed Wednesday's North American session at 1.4630 reached 1.4502 at 3:10 am ET Friday. The next upside target level for the dollar is seen at 1.439.
The pound has fallen 27% against the dollar in 2008, dragged down by worries over rising unemployment, deteriorating public finances and a series of aggressive UK interest rate cuts. The pound sank the most versus the dollar since at least 1972.
The Bank of England reduced its main rate to 2 percent on December 4, the lowest level since 1951, as lenders rationed credit and the U.K. economy sank deeper into a recession.
World governments have pumped more than $1 trillion into their economies to keep business afloat and save jobs, and more aid is expected in 2009 in the form of fresh bailouts, rate cuts and other measures to stave off an even deeper recession.
Global credit markets are showing some signs of improvement, but banks remain reluctant to lend to businesses and consumers, fearing a rash of bad loans as economies worsen.
Investors now look forward to the New York session, in which the US ISM manufacturing report for December has been slated for release. Economists expect the index to show a reading of 35.4 for December.
The manufacturing index fell to 36.2 in November from 38.9 in October, with the latest month's reading marking the lowest reading since May 1982. The new orders index fell to 27.9 and the production index slipped to 31.5, while the employment index was down at 34.2. The new export orders index remained almost unchanged at 41. Reflecting the tumbling commodity prices, the prices paid index declined to 25.5 from 37 in the previous month.
All markets were closed yesterday in observance of the 'New Year' celebration.
For comments and feedback contact: editorial@rttnews.com
June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.