LONDON (AFX) - The euro fell back in midday trade as euro zone pointers highlighted the relative weakness of the economy, dealers said. The key German Ifo business climate index fell below expectations to register its fourth straight decline, indicating once again the precarious state of the German economy.
The inability of the dollar to weaken despite economic as well as earnings uncertainty and the prospect of unilateral US action against Iraq probably reflects concerns over Europe and Japan who have both done little to offer positive guidance to investors, said Divyang Shah, global strategist at IDEAglobal.com. While the Federal Open Market Committee vote to keep interest rate was split, the European Central Bank continues to say that rates are appropriate.
"European policy sees fiscal and monetary policy as appropriate and the ECB has given little indication of being proactive despite another weak Ifo reading. In contrast, the US Fed seems to be inching ever closer to an easing with Governor Gramlich and President McTeer dissenting," Shah said.Further, the Fed has come out to acknowledge the destabilising effects of heightened geopolitical risk, he added.
There are some safe haven type flows in favour of the dollar but there are still concerns about the US's current account eficit, Shah said. The dollar was also stronger against sterling and the yen. The market will have its ears peeled for US Fed Chairman Alan Greenspan's various speeches in London today, dealers said. //www.forexdirectory.net