reason why oil is falling

http://www.cnbc.com/id/25791207

Dollar Jumps on Paulson, Plosser Comments


Treasury Secretary Henry Paulson reiterated on Tuesday that a strong dollar is important to U.S. interests and the underlying strength of the economy, as well as policies aimed at shoring up confidence, would be reflected in currency markets.

At the same time, Philadelphia Fed President Charles Plosser said rising inflation could force the Fed to start raising interest rates even before labor and financial markets recover.

"U.S. officials are out in force this morning talking up the dollar and attempting to restore some stability in the financial markets," said Kathy Lien, chief strategist, at DailyFX.com.

"With U.S. Treasury Secretary Paulson saying 'a strong dollar is really very important' and Fed President Plosser calling for a rate hike before the economy turns around, it is not surprising to see the euro below $1.59," she added.

In early trading in New York, the euro Euro SpotEUR-TN
1.5846 -0.0071 -0.45% BIS


Quote | Chart | News | Profile
[EUR-TN 1.5846 -0.0071 (-0.45%)] fell against dollar, below its record high of $1.6037 set last week according to Reuters Dealing.

The euro Euro / Japanese Yen Cross%24%24EURJPY
169.31 -0.04 -0.02% BIS


Quote | Chart | News | Profile
[$$EURJPY 169.31 -0.04 (-0.02%)] also held steady versus the yen, near a historic peak of 169.92 set on Monday.

The dollar Japanese Yen SpotJPY-TN
106.87 0.45 +0.42% BIS


Quote | Chart | News | Profile
[JPY-TN 106.87 0.45 (+0.42%)] rose against the yen.


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A slump in oil prices below $130 a barrel further boosted sentiment on the dollar.

Crude-oil futures last traded down $1.47, or 1 percent, at $129.69 a barrel.

The United States benefits from lower crude prices because it is such a heavy consumer of oil.

The U.S. currency had earlier dropped against the yen and hovered near recent record lows against the euro after disappointing earnings from Wachovia and American Express.

Their bleak results continued to fuel worries about the U.S. financial sector and the economy as a whole.

Even with Plosser's hawkish comment, analysts remained skeptical that the Fed would raise interest rates this year given the extent of the U.S. downturn.

Compared with the Fed's 2 percent fed funds target rate, the European Central Bank's 4.25 percent base rate has kept the euro attractive for yield-hungry investors.

But there are further signs of the euro zone economy fraying.

Data released earlier showed Italian consumer morale plunging to its lowest for nearly 15 years in July as sentiment crumbled over the state of the economy and future prospects