Thursday April 21, 2005 - 10:08:22 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
Conflicting pressures on Fed
The dollar briefly strengthened through the 1.30 level after the US inflation data, but was unable to hold the gains and the dollar weakened to a low near 1.31 in New York. The dollar was undermined by a renewed decline on Wall Street and a fresh increase in oil prices. The US currency remained on the defensive in early Europe at around 1.3090.
The headline consumer price index was stronger than expected with an increase of 0.6% for March compared with expectations of a 0.5% increase and the underlying rate was double market expectations at 0.4%. There was a significant increase in energy costs which fed through into items such as transport costs. There were, however, also broader inflationary pressures which will increase concerns over the wider inflation trends. There is a possibility of a reversal next month on faulty seasonal adjustment, but inflation fears will still continue for now.
The Fed's Beige Book reported that growth was generally firm but the pattern of growth was uneven. There were also reports of increased inflation pressures and greater pricing power. The inflation data and increase in inflation expectations will maintain pressure for a faster pace of Fed tightening and a 0.5% interest rate increase at the next Fed meeting. The comments from Fed Governors over the past 24 hours suggested that the Fed was still aiming for a measured stance. The most likely outcome is that the Fed will maintain the current policy of 0.25% rate increases at the next two meetings.
Growth trends will remain important and the level of real earnings growth will cause concern with a 0.5% annual decline for March as this will erode consumer spending power. The forthcoming growth data will, therefore, be watched very carefully and a weak Philadelphia Fed index report would intensify concerns. There will also be fears that weaker growth will restrain the Fed's ability to tighten monetary policy beyond June. There is also the risk that stagflation fears will increase. If these market fears take hold the dollar will be vulnerable to selling pressure.
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."