Weak U.S. Dollar Adds To Pain at the Pump

War, political uncertainty, refinery shutdowns, speculation and rising demand are typically cited for causing our pain at the pump.

Oil is traded worldwide in dollars, so as the value of a greenback falls, it takes more dollars to buy a barrel of oil. Consumers from other countries haven’t seen such a sharp rise in the price of oil because their currencies are stronger than the dollar.

The U.S. dollar has been slumping for the past five years. Since the spring of 2003, it has gone from near 1:1 parity with other major currencies on the U.S. dollar index to 0.8 today. That’s a 20% slide in five years, and the dollar’s lowest point since the index was created in 1973.

A weak dollar can bring some economic benefits to U.S. exporters, however, because it reduces the relative cost of American exports to places with stronger currencies, such as Europe and Japan. In recent history, though, most American administrations have favored a strong dollar as a hedge against inflation.