Currency news - Dollar waits for Fed response

Dollar waits for Fed response - 31-08-07

A firm stance from the Fed Chairman on Friday would tend to support the dollar, especially as it would tend to undermine market interest in carry trades, although market conditions are liable to remain volatile.

The dollar weakened again on Friday as markets probed support levels. There are still serious stresses in money markets with inter-bank rates at a one-week high and these tensions will maintain some underlying dollar demand.

US second-quarter GDP was revised up to 4.0% from the original 3.4% estimate due to a positive contribution from trade, but markets remained focussed firmly on future trends. Elsewhere, there was a rise in jobless claims to 334,000 in the latest reporting week from 325,000 previously and the increase will maintain speculation that layoffs are increasing.

Comments from Fed Chairman Bernanke on interest rates and financial risk will be watched very closely on Friday. There is still pressure for an interest rate cut, but markets are now slightly less confident that the Fed will lower borrowing costs and the US dollar would be likely to strengthen if Bernanke takes a firm approach. President Bush is also due to announce measures to ease mortgage defaults on Friday.

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

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