Oil held near US$128 a barrel Friday in Asia after rising more than US$5 overnight as the dollar swooned against the euro in response to comments by the head of the European Central Bank, according to AP. The dramatic reversal in what had been a weakening market came after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. When interest rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro. Many investors tend to buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies, and analysts believe the dollar's protracted decline has been a major reason why oil prices have nearly doubled in the past year. Meanwhile, the dollar held relatively steady against the yen, changing hands near 106 yen in Tokyo's currency market. The euro was trading at levels near US$1.56 on Trichet's comments. Trichet spoke after the bank left a key interest rate unchanged amid concerns about inflation. While Trichet said a change in rates was not a certainty, he said some of the bank's governors favor an increase. «Oil, which was very weak, rallied on those comments,» said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. «They're out of step with the U.S., which is weakening the dollar.» Light, sweet crude for July delivery rose US$5.49 overnight _ its biggest single-day price increase in the history of the New York Mercantile Exchange crude contract _ to settle at US$127.79 a barrel. Larger one-day percentage jumps have taken place in the past. Midafternoon in Singapore, the contract was up 11 cents at US$127.90 a barrel in electronic trading. Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S., sending the dollar higher and pushing oil prices lower.
