Currency news - Dollar consolidation

Dollar consolidation - 02-10-07

The underlying short-term tone is likely to be one of dollar consolidation, especially with key US employment report at the end of this week.

Following the dip to fresh record lows, the US currency secured a tentative recovery Consolidation continued in early Europe on Tuesday with the dollar gaining some relief against high-yield currencies. There was also technical pressure for a correction following heavy losses during September and the dollar strengthened to 1.4180.

The US ISM index for the manufacturing sector declined to 52.0 in September from 52.9 the previous month with price increases slightly lower than expected. A small rise in the employment component will lead to some caution over selling the dollar aggressively ahead of Friday's employment report even though reported manufacturing jobs fell sharply last month.

After gains to record levels on Monday, further Wall Street gains would be likely to trigger some unease within the Fed over the need for a further short-term cut in interest rates. There is the potential for more cautious remarks over policy from central bank officials which is liable to stem dollar selling while confidence in the US economy is liable to recover slightly.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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