Friday July 16, 2004 - 09:28:07 GMT
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INVESTICA Ltd - www.investica.co.uk
US inflation remains in focus
The US consumer price report will be important today volatility will be a threat, especially as trading winds down ahead of the weekend, but expectations of a measured Fed tightening will probably persist unless the data is very strong. This is likely to maintain a gradual downward bias for the US currency. The Euro still needs a further period of consolidation before a challenge on 1.25. The dollar will need a CPI increase of at least 0.3% to break resistance around 1.2330.
The dollar strengthened to 1.2330 in New York on Wednesday, but drifted back to 1.2370 in early Europe on Friday.
Headline producer prices fell by 0.3% as gasoline prices dipped, but the underlying increase met expectations with a 0.2% increase. Jobless claims and industrial production figures were weaker than expected, but the potential damage to the dollar was offset by strong readings for the Philadelphia and New York manufacturing indices.
The consumer inflation report today will be closely watched with a headline and underlying increase of 0.2% expected. An underlying increase of 0.3% or more would revive expectations of a more aggressive Fed tightening and would offer near-term dollar support.
The dollar's underlying difficulties were illustrated by a warning from Fed Governor Bies that the wide current account deficit warrants a downward adjustment in the dollar. In this context, the capital account figures from the US today will be significant. In particular, the private capital flows will be watched closely and inflows below US$30bn would damage the US currency.
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