There is a strong inverse relationship between the trade-weighted USD and oil prices. In order to investigate it in details, we distinguished five recent periods of sharp rise or fall of oil prices.
Period 1: 01/01/2007 – 30/06/2008 (oil prices +135%) (trade-weighted USD -10%)
Period 2: 01/07/2008 – 31/12/2008 (-74%) (trade-weighted USD +13%)
Period 3: 01/01/2009 – 30/09/2009 (81%) (trade-weighted USD -5%)
Period 4: 01/09/2010 – 29/04/2011 (67%) (trade-weighted USD -9%)
Period 5: 30/06/2014 – 26/02/2016 (-70%) (trade-weighted USD +22%)
As monetary policy and in particular monetary policy divergence is also an important driver of exchange rates, we also computed a policy rate differential between the US and the 26 countries in the Fed’s currency basket (it is complicated to find proper and homogenous proxies of monetary policy expectations for the 26 countries). Policy rates are weighted according to weights in the Fed’s currency basket.
These charts allow us to make several remarks:
Why is the US dollar close to its peak?
DRUT Bastien , Fixed Income and FX Strategy