Friday September 3, 2004 - 10:02:27 GMT
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INVESTICA Ltd - www.investica.co.uk
How will the dollar react
Short-term market sentiment will be dominated by the US employment report. A figure close to expectations would stifle trading and prevent a significant dollar move. The net risks are probably tilted towards a firm report and growth above 200,000 could push the dollar to at least 1.2100. A figure below 100,000 would weaken the dollar sharply.
The employment report today will be very important for the US currency with expectations centred on a 160,000 increase. The revisions to previous figures will also be important after the weak report last month. The figure could also have considerable medium-term implications for the US economy and currency, especially with the impact on US interest rate expectations.
The dollar is likely to gain ground if the employment increase is above 180,000 while a figure below 100,000 would be damaging, especially as it would create major doubts over a Fed tightening in September. A very strong figure would boost the dollar, although the bond market reaction would need to be watched closely as a strong figure could put strong upward pressure on yields and destabilise Wall Street.
The ECB met market expectations and left interest rates unchanged at 2.0%. The ECB statement was also generally hawkish over interest rates with the ECB confident that growth is gathering pace. The data has not backed up this optimism with the Euro-zone PMI index for the services sector slowing to 54.5 in August from 55.3 the previous month.
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