Friday August 20, 2004 - 09:44:46 GMT
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INVESTICA Ltd - www.investica.co.uk
High-yield interest restrains Euro
The interest in high-yield currencies will tend to undermine the US currency in the short term. A reluctance to increase US rates would preserve the advantage for high-yield currencies and longer-term dollar vulnerability will also continue. There will be position adjustment in New York with a potential curbing of long Euro positions. The Euro will be vulnerable to a retreat back to 1.2320 if it fails to push above 1.2385 by early New York.
Dollar support at 1.2385 has held with investors concentrating on high-yield currencies due to the lack of movement in Euro/dollar. This has weakened Euro buying and options-related activity has also restrained the Euro.
The US economic data showed a decline in the Philadelphia Fed index to 28.5 in August from 36.1 in July. There was also a decline in orders and employment while the prices index remained strong. The markets had downgraded expectations of the figures, minimising immediate dollar risks, but the US currency will be vulnerable if there is a sustained downturn in the growth indicators.
The dollar was unsettled by security concerns with fighting in Najaf and a mortar attack on the Baghdad embassy. Oil prices will remain an important focus with prices pushing to near US$49 p/b in New York on Thursday. There will be further speculation that high oil prices will dampen US growth and deter further Fed interest rate increases.
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