Friday July 9, 2004 - 08:20:35 GMT
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INVESTICA Ltd - www.investica.co.uk
Weak dollar correction
Overall dollar sentiment is likely to remain negative in the short term. There will be further doubts over the growth outlook and a downward revision to US interest rate expectations. Security concerns, high oil prices and equity-market weakness will compound the dollar's difficulties. The US currency is liable to test 1.25 next week, but short covering ahead of the weekend should provide some initial dollar relief with a minor correction back towards 1.2360 realistic today.
The dollar dipped to a low 1.2420 in early Europe on Friday before correcting slightly to 1.2395.
US jobless claims fell sharply to 310,000 in the latest week, but the drop was probably related to seasonal adjustments and the dollar failed to benefit. There will be further concerns that the US economy is slowing which will continue to undermine US interest rate expectations, especially with corporate retail sales reports disappointing. The US equity markets remained on the defensive on Thursday, unsettled by profit warnings and an increase in oil prices. The dollar will remain fragile if US equity markets struggle, especially as the US remains dependent on short-term capital inflows to finance the current account deficit.
Security concerns have hampered the dollar after warnings that the US will be targeted by al-qaeda before the November presidential election. Any sustained increase in tensions would be a significant negative factor for the dollar although, at this stage, it is mainly a symptom of underlying negative dollar sentiment.
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