Wednesday January 31, 2007 - 11:19:09 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar waits for Fed stance
Overall, the dollar should have a firmer bias, but will find it difficult to make strong headway unless markets start to price in a Fed tightening later this year.
The Euro pushed to 1.2980 against the dollar on Tuesday, but found it difficult to make a challenge on the 1.30 level, restrained to some extent by a correction against the yen. The dollar edged stronger in early Europe on Wednesday with a challenge on levels below 1.2950.
US consumer confidence rose to 110.3 in January from an upwardly revised 110.0 the previous month. The present conditions component continued to improve, but the expectations component weakened slightly. The data will maintain confidence over the near-term outlook, although the immediate impact should be limited.
Investors will continue to focus on the Federal Reserve interest rate decision on Wednesday and key economic data due over the next few days. Interest rates should be left on hold at 5.25%. The Fed is likely to retain a firm stance in its policy statement with further warnings that it will remain vigilant on inflation. The Fed's economic assessment will also be very important for the US markets. A firm statement and optimism over growth would help underpin the dollar, although the US currency will find it difficult to secure strong buying unless the market moves to price in a Fed tightening later this year.
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