The dollar was firm in midday trade, bolstered by equity market rises and ahead of the third quarter earnings season in the US, dealers said. But there was little reason to push the dollar above its recent trading range as corporate performances may well prove to be disappointing, they added. Divyang Shah, global strategist at IDEAglobal.com said financial markets will have plenty to focus on with 158 S&P 500 and 14 Dow 30 companies reporting their third quarter earnings this week.
He believes the dollar is vulnerable. "The landscape is still full of risk and the US economy's reliance on the household does little to install confidence on the economic outlook especially following recent retail sales and consumer confidence data," he said. For the forex market, the earnings season means the high degree of correlation with equity markets will continue, he added.
But players are still reluctant to take positions in any meaningful way amid a deteriorating risk climate, dealers said. "A possible Al-Qaeda link to the bombing in Bali and the deteriorating situation in Brazil have kept risk premia in markets well under-pinned," said Steve Pearson, head of currency strategy at HBOS treasury services.
The climate of risk aversion may well be mitigating the positive impact of a firmer stock market on the dollar, he added. The rising tension in the Brazilian financial market where the central bank hiked rates by 300 basis points is likely to keep the dollar's gains in check, dealers said. The euro could be in for a bad time when the German ZEW index is released. Sterling clawed back higher, having fallen on the back of rumours that Vodafone will increase its efforts for Vivendi's stake in Cegetel.
UK inflation continued to look benign with official figures from National Statistics showing RPIX, the government's preferred measure of inflation in that it strips out mortgage interest payments, rising to 2.1% from 1.9% in August and expectations of a rise to 2.0%. Headline inflation RPI was similarly 0.1% above expectations at 1.7%.///www.ananova.com