Thursday March 16, 2006 - 10:40:47 GMT
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INVESTICA Ltd - www.investica.co.uk
Another crucial 24 hours
The New York manufacturing index was stronger than expected with an increase to 31.2 in March from 21.0 in February, although there was an easing of inflation pressures. The Fed Beige Book reported solid growth in most districts and rising employment. Districts, however, reported a slowdown in the housing sector and also noted an absence of labour-cost pressures. The benign inflation trend and slowing housing sector will reinforce speculation that the Federal Reserve may not need to increase interest rates much further.
The dollar remains very sensitive to any downgrading of market expectations and drifted weaker after the Fed report to 1.2070. The dollar was unable to strengthen through 1.2030 in early Europe on Thursday. In the context of interest rate expectations, the consumer inflation data will be very important for interest rate expectations and the dollar on Thursday, especially following comments from Fed Governor Yellen that policy will be led by near-term data trends.
The latest capital inflows data recorded a modest increase to US$66.0bn in January from US$53.8bn previously and there will be some concern that inflows were below the monthly trade deficit level. There were also net outflows of private funds from the US bond market which will unsettle the dollar from a longer-term context, but strong equity inflows were a more positive factor.
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