Friday October 8, 2004 - 09:52:55 GMT
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INVESTICA Ltd - www.investica.co.uk
Fed payroll warning?
The dollar's near-term direction will be set by the employment report later today and volatility will be a high risk in New York. Markets are expecting an impact from the Florida hurricanes and this could allow the dollar to avoid selling pressure on a weak report, although there would likely to be serious medium-term dollar damage if the employment gain is below 100,000.
The dollar was unable to strengthen back to 1.2250 on Thursday and the US currency weakened to 1.2335 in early Europe on Friday.
The payroll figure today will inevitably have an important dollar impact. The consensus forecast is for an increase of around 145,000. A figure above 200,000 would bolster dollar confidence, but the US currency will be vulnerable if the figure is below 120,000.
Fed Governor Bernanke stated that there could be a pause in the Fedís tightening if the US economy slows. US Treasury Secretary Snow also warned that the employment report could be damaged by the Florida hurricanes. There has been some speculation that the warnings were being given because the officials know that the US employment report is going to be weak. This will tend to undermine the dollar ahead of the report, although it will also prompt a bigger bounce if there is a strong report.
The ECB dropped remarks expressing optimism over an acceleration in growth and Trichet stated that there was also a great deal of uncertainty. The ECB will, however, also be concerned over the inflationary impact, especially with high oil prices. There is, therefore, still the possibility that the ECB will have to increase interest rates to control inflation in the fourth quarter.
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