Friday January 27, 2006 - 10:51:33 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar dependent on yield support
The US data was generally firm on Thursday, but failed to have a major initial impact. There was a 1.3% increase in durable goods orders for December after a revised 5.4% increase the previous month. The data was again distorted by transport orders but there was still an underlying 0.9% increase and a strong reading for capital goods orders was a positive sign for the economy. Jobless data remained favourable with claims below the important 300,000 threshold for the second consecutive week and this will boost confidence over next week’s payroll report.
The Friday GDP report will also be important for near-term trends ahead of the crucial FOMC meeting next week. Later in New York on Thursday, the dollar pushed to 1.22 against the Euro, supported by a rise in 10-year Treasury yields to above the 4.50% level and by solid gains on Wall Street. There has also been a shift in futures markets with investors now pricing in around a 75% chance of a further interest rate increase in March. This will leave the dollar vulnerable to sharp selling pressure if there is disappointing GDP data or a soft stance from the Fed. The dollar was holding just stronger than 1.22 in early Europe on Friday in cautious trade.
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