Monday May 1, 2006 - 10:12:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar looks for weak correction
The dollar failed to strengthen through the 1.25 level on Friday and weakened to lows beyond 1.2620 in New York as funds looked to hold Euros on the last trading day of April. The dollar failed to secure any significant correction in early Europe on Monday with activity severely limited by market holidays.
US first-quarter GDP growth accelerated to 4.8% from 1.7% in the fourth quarter of 2005 with particular strength in business investment. The core PCE price deflator fell to 2.0% for the quarter to give an annual rate of 1.9%, just below the unofficial 2.0% Fed ceiling. The first-quarter rise in employment costs was lower than expected at 0.6% and the moderate figure will lessen fears over inflationary pressures resulting from the tight labour market.
The other US data recorded a decline in the University of Michigan consumer confidence to 87.4 in April from the provisional figure of 89.2 while the April Chicago PMI index fell to 57.2 from 60.4. The data overall keeps the US economy on track for a moderation in growth and generally subdued inflationary pressure. There will, therefore, be further speculation that the Federal Reserve will be able to pause the tightening process at 5.0% after a 0.25% rate increase in May. This speculation will continue to undermine short-term dollar support on interest rate grounds, although longer-term yields have remained firm.
The Euro-zone consumer inflation rate strengthened to 2.4% in April from 2.2%, remaining above the 2.0% ECB target level. Money supply growth was also higher than expected at 8.6% in March from 7.9% and this will reinforce expectations of higher Euro-zone interest rates, although rates are likely to be unchanged this week.
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