Tuesday March 1, 2005 - 11:23:51 GMT
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INVESTICA Ltd - www.investica.co.uk
German woes support dollar
The dollar found support at the 1.3270 level against the Euro and managed to strengthen back to 1.3225 in New York, although the dollar's performance was far from convincing. The dollar will be eroded by a sustained decline in stock prices and oil prices will also be closely watched as levels above US$52 p/b will have some negative impact on the US currency. The dollar managed to strengthen to 1.3175 in Asia before edging back to 1.3200.
The Chicago PMI index was stronger than expected at 62.7 in February with a firm employment index, but the beneficial impact of the figure was offset by a sharp drop in new home sales. The personal income and spending data was close to expectations with the income figure falling 2.3% after the Microsoft-induced gains seen the previous month. The inflation indicators were slightly stronger within the data which will maintain some speculation that the Fed may have to move at a faster rate to tighten monetary policy. In this context, comments from Fed officials will be important over the next 48 hours with Greenspan's Wednesday testimony particularly important.
The US currency is still vulnerable on structural issues and fears over reserves diversification. The key feature is that dollar rallies are likely to be limited unless there is a heavy stop-loss selling on high-yield currencies. Although the risks of this are still relatively low at present, it should certainly not be ignored and the risks will increase substantially if there is a further increase in speculative positioning.
The seasonally-adjusted German unemployment figures were very weak with unemployment rising by over 160,000 in February. This will have some impact in weakening the Euro, especially if the Friday US employment data is very strong. The Euro-zone PMI index for the manufacturing sector was unchanged at 51.9 in February.
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