Wednesday April 6, 2005 - 09:54:00 GMT
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INVESTICA Ltd - www.investica.co.uk
Yields remain in focus
The dollar strengthened to a high of 1.2800 against the Euro in Europe on Tuesday and made a brief challenge on levels below 1.28, but the US currency retreated back to 1.2865 in New York. The dollar retained a corrective stance on early Wednesday in Europe at 1.2880.
Fed Chairman Greenspan expressed some optimism that market forces would reverse the very high level of oil prices and did not issue any fresh warnings over inflation. This encouraged profit taking on long dollar positions. Interest rate differentials will tend to remain the dominant factor and official comments on inflation by the Fed will remain a major focus. Fed Chairman Greenspan is due to speak again on Wednesday and his comments will again be closely watched, especially in the absence of significant economic data. Underlying interest rate expectations will still offer support to the US currency in the short term, particularly with no expectations of a rise in Euro rates on Thursday, although the currency will remain vulnerable to profit taking if Greenspan does not fuel expectations of a faster pace of monetary tightening.
The evidence suggest that there was heavy Euro demand below the 1.28 level and the Euro is likely to find further support on dips to below this level. There were reports of Euro buying from Far East and European central banks for the Euro below this level. Structural Euro buying is likely to continue below the 1.28 level and this will make it difficult for the dollar to make further headway.
The confidence in US financial markets will remain important in the short term. There has been some evidence of increased equity flows into the US currency, but these flows will be in jeopardy if Wall Street fails to make headway over the next few days.
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