Wednesday June 8, 2005 - 09:34:44 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar caution increases
The Euro has been able to secure a slightly firmer tone against the US currency, pushing to 1.2330, but is still struggling to take advantage of slightly increased dollar vulnerability.
The US currency has continued to be undermined by Greenspan's comments on low bond yields with markets interpreting the comments as suggesting that a pause in monetary tightening will be considered after the June FOMC meeting. Greenspan did not refute suggestions made by Fed Governor Fisher last week that the tightening process could be near completion. Markets will watch Greenspan's testimony very closely on Thursday for any further hints over US interest rates. The speculation will dampen near-term buying interest.
The dollar is also being unsettled slightly by caution ahead of the Friday trade data with some concerns over a wider than expected deficit as this would revive market concerns over the US deficits and revive underlying negative dollar sentiment. A robust statement from Greenspan and a favourable trade deficit would revive near-term dollar buying interest.
ECB Chairman Trichet has continued to dampen expectations of a near-term interest rate cut, reiterating that rates will be left on hold in the short term, but speculation over a move will continue and Euro sentiment will remain very fragile. Confidence in the economy will remain weak and the Dutch central bank cut its 2005 GDP growth forecasts sharply on Wednesday to 0.4%. There will be further speculation that global central banks will slow Euro reserve accumulation over the next few weeks and months which will lessen the potential for a Euro advance. There is, however, the potential for a reduction in short Euro positions which will offer initial Euro relief.
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