Friday September 17, 2004 - 10:21:01 GMT
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INVESTICA Ltd - www.investica.co.uk
Speculation over Fed pause
The US data did not offer dollar support yesterday, especially with disappointment over the headline Philadelphia index and there will be renewed speculation that the Fed will put rates on hold after an increase next week. The data was not, however, weak enough to justify heavy dollar selling at this stage. Overall, the dollar offers poor value stronger than 1.2130, but the Euro will need a break above 1.2220 to spur further buying.
The US data did not offer support to the US currency. After a decline to 1.2180, the dollar weakened further to 1.22 in early Europe on Friday.
Consumer prices rose by 0.1% for August compared with expectations of a 0.2% increase. The underlying rate was held at 0.1% for the third consecutive month with the annual rate declining to 1.7%. The data suggests that there is no pressing need for a monetary tightening to curb inflationary pressure. This will reinforce market speculation over a potential Fed pause after a probable rate hike in September.
The Philadelphia Fed index weakened to 13.4 in September from 28.5 in August, the lowest figure since July 2003. The other components were stronger, particularly for orders and employment. The overall message is still mixed, although the pressure on forthcoming data will tend to increase.
The US capital account data reported inflows of US$64.0bn in July compared with US$74.0bn the previous month. There was a decline in buying of US Treasuries, but there will be some relief that there was a recovery in private inflows with equity inflows rising to US$9.8bn.
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