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Dollar's Rebound May Push Oil Prices Lower—For Now
CNBC.com | May 12, 2008 | 01:44 PM EDT

The weak US dollar, which has been a major factor in both oil and stock prices in recent months, is finally showing signs of rebounding.

But while a stronger dollar is likely to push record-high oil prices lower, many experts think both trends may not last long. The reason: global demand for oil remains strong, while continued weakness in the US economy will limit the dollar's gains.

A strong dollar usually translates into weaker commodities prices, especially oil. A rare exception was last week when the dollar gained but oil surged on strong global demand and news of low fuel stocks.

Right now, the signs from the stock market, the economy and the Federal Reserve have analysts betting on a short rally for the US currency and a quick move lower for skyrocketing oil.

"We think we're in the midst of a commodities bubble, and one of the pins that could pop this bubble in fact is a strengthening dollar," says Hank Smith, chief investment officer at Haverford in Philadelphia. "So we could easily see a scenario play out out for the remainder of the year where the dollar strengthens, commodities come down, our economy picks up due to all of the stimulus that's been applied, and we end up the year in fairly good shape given everything that we've been through with the credit crisis."

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