Tuesday July 19, 2005 - 10:23:53 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar confidence intact
The Euro was unable to push above 1.2085 and there was a dollar move to just beyond 1.2000 in early Europe on Tuesday. Overall dollar confidence remained firm, although there was evidence of resistance just below 1.20.
The US treasury report on capital inflows was close to expectations with inflows of US$60bn in May from US$47.8bn in April. The details of the report caused some unease with the US recording a slight outflow of overseas funds from equities for the first time since last September. The amount of central bank bond buying also weakened with the slack taken up by private buyers. This mix will raise some concerns over future funding and the potential dollar vulnerability if more speculative funds are withdrawn from the US. The near-term implications are, however, still generally dollar supportive as shorter-term inflows are likely to remain firm.
Fed Chairman Greenspan remained optimistic over the economy in reported remarks on Monday, expressing confidence over moderate growth, and he is likely to repeat these upbeat comments in congressional testimony on Wednesday. Fed Governor Poole also stated that market expectations for high interest rates were reasonable. The overall Fed stance and confidence over growth should offer support to the dollar, but much of the favourable news has been priced in.
The Euro-zone inflation rate was in line with expectations at 2.1% for June while the underlying rate fell to 1.4% from 1.6%. The data will reinforce expectations that the ECB will be content to keep interest rates on hold in the short term. The German ZEW index rose more than expected to 37.0 in July from 19.5.
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