Thursday June 1, 2006 - 11:14:18 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar trades off rate expectations
The dollar found further support close to the 1.29 level against the Euro on Wednesday and strengthened to 1.2815 in New York. The US currency retained as firmer tone in early Europe on Thursday with a move to 1.2760.
May‚Äôs FOMC minutes indicated that the discussion was dominated by inflation. Members were concerned over a rise in inflation expectations and, although they were still confident that pressures should be contained, they were determined to prevent rising expectations becoming a more serious problem. There was still a considerable degree of uncertainty as to the extent of further interest rate increases and, indeed, whether any further tightening would be required at all. The discussion over a possible 0.5% rate increase or no change at the May meeting illustrated the uncertainty. Overall, the minutes will offer some initial dollar support as markets move closer to pricing in a June increase, but there will be considerable caution ahead of Friday‚Äôs payroll report.
The Chicago PMI index was stronger than expected with an increase to 61.5 in May from 57.2 the previous month and a small increase in the prices component will maintain the possibility of further rate increases. The national ISM data will be watched closely on Thursday ahead of Friday‚Äôs employment report with wages data likely to be very important for market expectations. The dollar is now more vulnerable to weak data as interest rate expectations would be adjusted.
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