Monday November 28, 2005 - 11:10:05 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar faces data tests
The Euro remained weak on Monday and retreated to below the 1.17 level against the US currency before a recovery back above this level.
The markets are now taking a more optimistic stance on US interest rates with confidence that the Fed would continue the policy of interest rate increases in the short term. There was also optimism that short-term US interest rate differentials over the Euro would continue to widen on a 2-3 month view. Significantly, there was a recovery in the dollarís yield advantage on 10-year bonds and this helped underpin the US currency. The economic data will be watched closely this week to assess US growth trends and there will be an important impact on dollar sentiment. Initial evidence suggests firm retail spending over the Thanksgiving weekend, but heavy discounting could result in sales being brought forward which would undermine sales later in the season.
The capital repatriation trends will remain an important focus in the short term with uncertainty over how much repatriation back to the US is left to be done before the year-end deadline. The dollar will face much greater difficulties in rallying further if capital repatriation fades. The extent of central bank Euro buying close to current levels will also be important for overall dollar trends.
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