Friday July 8, 2005 - 09:46:06 GMT
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INVESTICA Ltd - www.investica.co.uk
Focus reverts to dollar
The terrorist attacks in London pushed the dollar weaker through the 1.20 level against the Euro to a low of 1.2035, but the Euro was unable to sustain these gains and weakened back to a low of 1.1925. The dollar will remain sensitive to terrorism, but the quick recovery on Thursday illustrates that underlying confidence in the US currency is still intact.
Attention will switch back to the US economy on Friday and the payroll report will inevitably be very important for the markets. The US data was close to expectations on Thursday with the increase in jobless claims held to 319,000 from 312,000 the previous week which should support optimism over the US employment report as jobless claims have been running at fairly low levels over the past few weeks. Markets are looking for a firm report and this will lessen the potential for dollar buying after the data release. Any figure above 200,000 would, however, reinforce underlying optimism over the economy and expectations of further US interest rate increases. In this environment, the dollar should recover next week from any short-term profit taking. Any figure close to or below 100,000 would damage the dollar, but there will need to be a sustained series of weak releases to cause a serious near-term reversal in sentiment.
As expected, the ECB left interest rates unchanged at 2.0% on Thursday. In the press conference following the decision, ECB Chairman Trichet state clearly that the central bank will leave interest rates unchanged in the short term. Trichet did, however, issue some concerns over inflation within the Euro-zone and this suggests that the bank will be very reluctant to cut interest rates. The ECB statement should offer some mild support to the Euro, but investors are still tempted to sell the Euro on yield considerations.
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