Friday September 16, 2005 - 10:24:57 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar faces deficit test
The Euro found some measure of support around the 1.22 level against the dollar, but struggled to make any significant headway during Thursday. The Euro did, however, find stronger support in Asian trading on Friday, pushing to 1.2295 against the US currency in early Europe on Friday.
The US data was mixed, but had a weaker bias. Jobless claims rose to 398,000 in the latest week from 327,000 the previous week. The data did capture some of the hurricane Katrina impact, but there are still a very high number of claims yet to be processed which will put upward pressure on the data over the next two weeks.
The New York manufacturing index fell to 15.5 in September from 23.0 the previous month while the Philadelphia Fed index fell more sharply to 2.2 in September from 17.5 in August. There was a sharp drop in the Philadelphia orders component to below zero while employment was subdued and there was a jump in the prices index. The Philadelphia data will increase the degree of unease over US economic developments, especially as overall business confidence has weakened. There will, however, be uncertainties whether this was a temporary reaction to the hurricane or illustrates a more serious and longer-term downturn in underlying confidence.
The headline US consumer inflation increase was close to expectations at 0.5%, but the underlying rate was below expectations at 0.1% which held the core annual increase to The Fed will be unsettled by the rise in headline inflation given the dangers that inflation will fed through into wider inflationary pressure. There is still the potential for the Fed to tighten policy next week, but there is likely to be some speculation that the Fed may then consider a pause. A combination of rising inflation and weaker growth would certainly complicate the Fed's task and would be unlikely to offer longer-term dollar support.
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