Wednesday April 27, 2005 - 10:07:46 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar sensitive to growth data
The dollar was confined to narrow ranges against the Euro during Tuesday and retreated back to 1.2980 after failing to push through 1.2950. After quiet trading in Asia, the dollar managed to push through the 1.2950 level, reaching a high of 1.2915 in early Europe on Wednesday due to stop-loss Euro selling.
The US consumer confidence data was slightly weaker than expected with a decline to 97.7 in April from 103.0 the previous month and the expectations component fell to the lowest level in over 18 months. There will be further concerns over confidence and spending, but the short-term impact on the US currency was prevented by the stronger than expected new home sales data which recorded a strong 12.9% increase for March. The housing sector is likely to have an important impact on the economy over the next few months and the strong data will, therefore, have an important impact. There will still be wider doubts over the US economy's strength and the dollar will be vulnerable if there is sustained weakness in indicators, although the impact of individual data should be limited unless the figures are extreme.
The Dow Jones performance was disappointing with a Tuesday decline of close to 100 points on continued unease over US earnings reports. The US currency will remain vulnerable if there is a sustained downturn in the stock market, especially as this would reinforce concerns over the US ability to finance the current account deficit. These concerns will remain very important for the dollar's medium-term outlook.
The Euro-zone economic confidence will remain weak after the downgrading of growth forecasts by the German economic institutes. The Euro is, however, likely to gain some support from Asian bond inflows and the Euro will still retain important defensive qualities.
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