Thursday September 9, 2004 - 09:56:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Greenspan doubts hurt dollar
The more cautious than expected stance from Greenspan will unsettle the US currency in the short term with speculation of a pause in rate hikes after a probable September increase. The market reaction also illustrates tough dollar resistance close to the 1.20 level and the dollar's lack of value at this level. The Euro will need to push through 1.2225/50 to make strong headway and this will be tough in the short term, with underlying ranges still likely to prevail until there is further US growth evidence.
The dollar strengthened to a high of 1.2035 against the Euro, but it weakened sharply after Greenspan to 1.2180. Greenspan was slightly more cautious than expected, voicing some uncertainty over August retail sales trends. His overall tone was also less confident over the US economy than was expected by the markets, with particular concerns and uncertainties over the impact of oil prices.
Greenspan was optimistic that inflation would be kept under control. The comments suggest that a September rate increase is likely, but that the central bank will then consider a pause in tightening. The Beige Book offered no support for the US currency. Several Fed districts reported that the pace of growth had showed signs of a slowdown in August.
Market uncertainty will persist in the short term, especially as it is difficult to find an obvious winner in the global markets with doubts over the US, Euro-zone and Japan. Given underlying weaknesses, the dollar will, however, be vulnerable if forthcoming US data is disappointing.
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