Wednesday September 15, 2004 - 09:59:25 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar protected by doubts elsewhere
The widening US current account deficit and slightly disappointing data will unsettle the dollar. There will, however, be little enthusiasm for other currencies with the Euro also hurt by weak German data yesterday. There is likely to be further institutional defence of narrow ranges initially which will make a near-term break of ranges difficult. Underlying dollar vulnerability will continue, but the Euro is still likely to be blocked around the 1.23 level in the short term.
The Euro made two challenges on the 1.23 level against the dollar, but it was unable to push through resistance there and the Euro weakened back to 1.2240 in early Europe on Wednesday as narrow ranges prevailed.
US retail sales fell 0.3% in August compared with expectations of a 0.1% decline, but there was an underlying increase of 0.2%. The longer-term uncertainties over growth will tend to hamper the dollar, but the potential for a September Fed rate increase will limit the selling pressure.
The current account deficit widened to a record US$166.8bn in the second quarter from US$147.2bn the previous quarter. The trade deficit widened and there was also a decline in the investment income surplus to US$2.64bn from US$12.2bn. From a longer-term perspective, there will also be concerns that portfolio inflows weakened and direct investment inflows remained negative.
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