Monday October 10, 2005 - 09:41:14 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar prices in good news
The dollar secured limited gains against the Euro ahead of the US employment report on Friday and also strengthened after the report. The US currency pushed to 1.21 against the Euro, but was unable to break through this level and drifted weaker towards 1.2140.
The headline payroll decline was held to 35,000 in September compared with expectations of a drop closer to 150,000 while the August figure was revised up significantly to 211,000. The unemployment rate rose, as expected, to 5.1% from 4.9% the previous month. The underlying increase, excluding the impact of hurricane Katrina, was close to 200,000. The figure will boost confidence in the economy late in the third quarter, but there are still likely to be doubts over the fourth-quarter outlook. Forthcoming spending data will be watched very closely.
The earnings increase was held to 0.2% for September which will reassure the Fed on wage inflation to some extent. The data and Fed comments this week will be important for the currency with the trade data on Thursday and inflation figures on Friday. The headline figures in both reports will be inflated by high energy prices. The dollar will aim to secure support from expectations of higher interest rates, but much of the favourable news has been priced in and there will still be fears that Fed action on inflation will undermine the economy. Wall Street trends will be important for the week as a whole.
The German government coalition is likely to be today with CDU leader Merkel as chancellor and this will offer some limited Euro support. The Euro will also gain some support from expectations of a tighter ECB policy. There is still the risk of longer-term flows out of the US currency on reserve diversification, but this is likely to be offset by the potential for corporate repatriation back to the US as this is the last quarter when tax relief will be available for US companies.
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