Tuesday February 7, 2006 - 10:45:01 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar prices in good news
The Euro was unable to hold gains above the 1.20 level against the dollar and weakened to lows just below 1.1950 during Monday in a continuation of last weekâ€™s trend. The dollar retreated slightly to 1.1980 in early Europe on Tuesday, undermined by losses against the yen.
The US currency is still gaining support from Fridayâ€™s US unemployment data. Regional Fed Governor Fisher stated that the Federal Reserve would continue to fight inflation, supporting interest rate expectations, although he is not a current voting FOMC member. The dollar, in turn, is being supported by yield expectations with markets attaching a near 100% probability to a further interest rate increase in March.
The equation for the dollar will be considerably more complicated if the Fed feels it needs to tighten policy further to combat inflation at a time when the economy is slowing. This would offer substantially less dollar support as fears over the US economy would increase. Longer-term yield support has also not increased which will limit the potential for further near-term dollar gains and some reversal is a considerable risk. The dollar will also now be very vulnerable if the Fed suggests on any doubts over a March rate increase
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