Wednesday November 3, 2004 - 10:58:22 GMT
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INVESTICA Ltd - www.investica.co.uk
Forex: Attention returns to US economy
The dollar should gain some immediate relief if a Bush election victory is formally confirmed today although a strong further reaction is unlikely. Attention will also tend to switch back to the US economy. There is the potential for a covering of short dollar positions ahead of the crucial Friday US employment data. Underlying dollar sentiment will, however, remain negative and there is little prospect of strong dollar buying.
The latest result give Bush a comfortable lead in the popular vote and he is also ahead in the electoral college. This allowed the dollar to push back through the 1.27 level in early Europe on Wednesday, but the US currency was again unable to hold the gains. The Ohio result is critical as a Bush win here would confirm his overall victory. Bush is ahead, but the narrow margin will maintain the risk of a protracted delay if the Democrats demand that the provisional ballots are counted. An extended delay would unsettle the US currency, but the margins involved suggest that there will be no real doubts over the outcome.
A Bush victory will offer some near-term US currency support, but substantial dollar gains are unlikely. The longer-term fundamentals will maintain underlying dollar vulnerability, primarily due to fears over the budget and current account deficits.
Attention will return to the US economy and the economic data will be important in the short term with the ISM services report later today. A weak figure below 56.0 would renew fears over the US economy, but there will be caution ahead of the vital payroll report on Friday. An ISM report above 58.0 would offer dollar support.
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