Monday November 22, 2004 - 11:14:34 GMT
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INVESTICA Ltd - www.investica.co.uk
Renewed pressure on ECB
Dollar sentiment will remain very bearish, especially after the comments from Greenspan on Friday. Without decisive action by the G7 officials the dollar will remain vulnerable to selling pressure and underlying depreciation is liable to continue. High yields will, however, offer support to the US currency and there are also a high number of speculative short dollar positions. Greenspan's comments will also tend to discourage dollar selling to fund carry trades. There is a high risk of fresh dollar lows against the Euro during the first half of this week.
The dollar weakened to a fresh low of 1.3075 against the Euro before staging a minor recovery and the dollar remained weak at 1.3045 in early Europe on Monday before edging stronger to 1.3025.
The dollar was damaged significantly on Friday by comments from Fed Chairman Greenspan. The Fed chief warned that the US current account deficit was unsustainable and also expressed concern that international appetite for the dollar would eventually fade. The comments were unusually forthright and continue to suggest increased Fed unease over the current account deficit. The comments have also increased speculation that the US Fed is looking for further dollar depreciation to help ease the trade imbalances.
The weekend G20 meetings produced no major public comments on exchange rates. There were further evidence of tensions behind the scenes with the US again calling on greater European efforts to boost global growth. The overall impression is still that there will not be any decisive measures to support the dollar from the US. This will increase the risk of divisions between the US and Europe and will also put the pressure on the European authorities to stem Euro gains. The ECB is in a difficult positions and is likely to increase verbal intervention as a first step.
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