Friday January 14, 2005 - 11:34:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Campaign for Asian gains
The official exchange rate policies will remain a very important near-term focus. The flurry of comments on Thursday will reinforce speculation that there will be a concerted effort at pushing Asian currencies stronger and alleviating upward pressure on the Euro. The structural US weaknesses will also continue to battle with improving yield differentials. A clear victory is probably unlikely for now, although the ECB comments on rates and Fed remarks will lessen the risk of dollar selling beyond 1.3250.
The dollar was confined to relatively narrow ranges during Thursday and managed to edge stronger towards 1.32 against the Euro. The dollar strengthened sharply in Asia on Friday as the Euro weakened due in part to selling against the yen. The dollar strengthened to 1.3060 before retreating to 1.3120.
The Fed is still on track for higher interest rates and near-term data will have to be extreme to disrupt these plans. Indeed, The evidence of the past 24 hours suggests that the rate differentials are having a significant impact in deterring dollar selling, especially with the Euro unable to make a fresh challenge beyond 1.3250 after the record US trade deficit. The Dow Jones index fell by over 100 points to a 2005 low and the market weakness will still be a source of concern for the US currency. Capital account concerns will also remain a major background concern for the dollar ahead of the Treasury data next week and the conflicting forces will continue to battle against each other.
The news conference was very interesting as ECB Chairman Trichet also aired the subject of Asian currencies. He followed Issing the previous day in calling for Asian currency flexibility to help alleviate global deficits. There appears to be a co-ordinated move with comments from the Bank of Canada and Fed officials on Thursday as well. The pressure will continue to increase ahead of the G7 meetings in early February. Trichet stated that there was a consensus in G7, but the difficulty is that China may not share this view.
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