Thursday June 12, 2008 - 10:30:17 GMT
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Forex Research - Dollar Continues to Strengthen As Traders Bet on Fed
Despite much better than expected results from the Industrial Production report the euro continued to lose ground to the dollar
â€˘ Japanese Yen: Trades to 107.50 as dollar remains well bid
â€˘ Australian Dollar: Employment worst since 2005
â€˘ Euro: Industrial Production surprisingly buoyant, but hurt by dollar strength
â€˘ Pound: Follows euro lower
â€˘ US Dollar: Retail Sales on tap
Despite much better than expected results from the Industrial
Production report the euro continued to lose ground to the dollar for
most of Asian and European sessions trading as low as 1.5390 before
bargain hunting and strong economic data steadied the unit. Industrial
Production in EZ rose to 0.9% from 0.0% expected with France and Italy
posting surprisingly strong gains.
The news continues to show that the regionâ€™s producers are able to
overcome high exchange rates and high energy prices and grow their
business. However, the report must be taken with a certain degree of
skepticism as the data is two months old and does not reflect the
massive increase in energy prices that have occurred since.
Nevertheless, the IP numbers are an impressive testament to the
productivity of the regionâ€™s manufacturing sector that has managed to
perform far better than expected in the face of tremendous obstacles.
The euro saw little help from the economic news however, as focus has
turned to the considerably more hawkish tone of US monetary policy.
With Fed Vice Chairman Kohn last night reiterating Chairmanâ€™sâ€™
Bernankeâ€™s concerns regarding inflation expectations, the market is
quickly coming to the conclusion that US monetary authorities will now
shift their attention towards re-establishing piece stability even at
the expense of some possible near term economic pain. The dollar
therefore strengthened not only against the euro but against the yen as
well as US rate expectations have been ratcheted higher.
One dollar that has not fared nearly as well as the greenback last
night was the Aussie. Australian employment data shocked to the
downside printing at -19.7K versus 13.5K projected. The report was
the worst decline since 2005 and brought to an end a string of 18
successive positive employment reports. As we noted earlier in the
week, a bet on Australia is a bet on China and with Chinaâ€™s two biggest
customers â€“ EZ and US experiencing a serious slowdown in consumer
demand Australia will face a difficult time as the summer progresses.
Todayâ€™s employment report has already followed a series of economic
disappointments over the past several weeks and may be an indication
that the great economic boom Down Under is coming to an end.
One reason that the buck is stronger tonight is due to speculation that
US Retail Sales will show a better than expected result as tax refund
checks make their way through the system. A strong print would provide
even better support for the Fedâ€™s recent hawkish stance, as it will
allow the policymakers to consider a rate hike without the risk of
further aggravating the economic situation and may push USDJPY to
108.00 figure on rate hike expectations.
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