Interviewee: Brad W. Setser, Fellow for Geoeconomics, Council on Foreign Relations
Interviewer: Lee Hudson Teslik, Associate Editor, CFR.org
June 18, 2008
Two of the defining geoeconomic trends of the past two years have been surging oil prices and a falling U.S. dollar. Of late, these trends show an increasingly tight correlation—with the falling dollar mirroring the rising price of oil. Brad W. Setser, CFR's fellow for geoeconomics, explains this dynamic. Setser says rising oil prices and a falling dollar are most basically correlated in the sense that they both reflect the same underlying geoeconomic factors—a weakening U.S. economy alongside much stronger growth in the developing world. He also discusses the possibility of a more direct, causal link, going in both directions.
In terms of oil prices directly affecting the valuation of the dollar, he notes:
In terms of the dollar's fall affecting oil prices, he notes:
Setser concludes that correlation between oil prices and the dollar won't stay as tight as it is now, but that some mirror-effect will continue, given the slew of geoeconomic factors working in favor of correlation.
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