Monday July 30, 2007 - 10:19:07 GMT
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INVESTICA Ltd - www.investica.co.uk
Capital repatriation supports dollar
Wall Street movements and wider trends in risk aversion will remain vital in the short term. Continuing market stresses would tend to support the dollar on a general reduction in US investment flows overseas.
The dollar managed to break Euro support close to the 1.37 level on Friday and strengthened to highs around 1.3635. The Euro remained under pressure on the crosses while the US currency secured further support from a cutting of aggressive positions with the latest IMM data still showing a substantial net long Euro position. The dollar stabilised close to 1.3640 in early Europe on Monday before drifting weaker to 1.3665.
Stock market conditions and wider levels of risk aversion will remain key dollar influences. Continuing stresses in emerging markets would provide significant protection to the dollar with a reduction in US equity holdings held overseas and a flow of funds back into the US currency. The overall tightening of credit conditions will not be a positive factor for the dollar given the need for capital inflows to fund the current account deficit. The net impact of these contradictory factors is liable to be slightly dollar positive.
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