LONDON (AFX) - The dollar firmed against major currencies in early trade as investors took a more positive view of U.S. economic prospects, dealers said.
"The move started yesterday with the surprise productivity numbers from the U.S. and its continued overnight with stories about President George W Bush's tax cuts assisting the dollar generally," Halifax economist Steven Pearson said.
"The view that the U.S. economy is going to be well supported in the second part of this year is buoying confidence in the dollar," he said.
For the fourth quarter, the U.S. registered a 2.4 pct rise in productivity against market expectations of about 2 pct.
WestLB's Richard Grace said the figures confirmed the view that the U.S. productivity miracle has been structural rather than cyclical. "This will allow the Federal Reserve to continue to cut rates aggressively... which should result in a more shallow growth slowdown than in previous economic cycles," he said in a research note. Grace said that with only initial jobless claims due today, U.S. data should have little impact on the currency market.
He said in a research note that the market had taken the view that despite recent positive growth figures in Germany and France, the euro zone economy could not decouple from the U.S. slowdown.
On sterling, dealers did not predict much of a reaction if the Bank of England's Monetary Policy Committee cut rates by 25 basis points as is widely expected.
"Sterling is generally very sensitive to interest rate differentials but because the move is so widely discounted in the market now I do not think it will have a material impact," Pearson said.
"What's more important now is to what extent the market extrapolates today's move and decides that UK rates have a lot further to fall. If that happens, we should see a very sharp rally," he said. Some investors are hoping tomorrow's Bank of Japan's policy board meeting will result in a quantitative easing of monetary policy to support the country's financial markets.