Saturday February 19, 2005 - 10:25:13 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
Dollar confidence falters
The dollar was unable to rally convincingly over the week and remained on the defensive for much of the time with the feature being the dollarís inability to sustain rallies seen on favourable news. The US currency weakened to a low near 1.31 against the Euro.
The week was dominated by Fed Chairman Greenspan, although the testimony actually had less impact than usual in shifting the currency markets. Greenspan repeated recent comments that the market forces would act to stabilise and possibly cut the current account deficit. Greenspan also stated that rates were still low, indicating that rates would continue to increase, although he did not offer any immediate hints that the pace of tightening would be accelerated. Overall, the comments were not strong enough to trigger greater confidence in the US currency or create fresh dollar buying interest on rate expectations.
The headline producer price inflation figures was in line with expectations, but the underlying rate of 0.8% was much higher than expected and the strongest monthly increase for six years. Although the Fed still appears relatively calm over inflation, the producer price increases will unsettle investors, especially if the consumer price data is strong over the forthcoming week. A strong increase in consumer prices would raise expectations that the Fed will have to increase the pace of monetary tightening to control inflation.
Jobless claims fell to their lowest level since October 2000 in the latest week and the headline Philadelphia Fed index was strong, although the components of the index were disappointing. There was a headline retail sales decrease of 0.3%, although this was in line with expectations and consumer confidence slipped slightly. At this stage, a measured Fed tightening is still the most likely outcome, but the risks of a more aggressive stance should certainly not be discounted.
The Treasury capital inflows report recorded inflows of US$61.3bn for Friday after a revised US$89.3bn for November. There was a reduction in central bank buying of dollar securities, but this was offset by increased private-sector inflows. The immediate fears over a shortfall of capital inflows should ease, but the underlying position will still be precarious and confidence will be a vital factor over the next few months. The dollar will be vulnerable if the deficits fail to narrow or there are signs of faltering demand for US assets even though the impact would be offset by hopes for a narrower trade deficit if US growth slows.
The Euro-zone has tended to be on the sidelines over the past week, but the Euro has gained some support from doubts over the US currency and concerns over the Japanese growth outlook. The German ZEW index was stronger than expected, but the Euro-zone growth figures were disappointing with fourth-quarter contraction in Germany, Italy and the Netherlands. The Euro is unlikely to gain significant support from growth trends, but there is still a risk that the Euro will gain by default.
Pressure for Asian currency appreciation will continue and this will tend to limit the potential for Euro gains against the dollar.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."