31 May 2006, 18:05  Dollar reverses some of earlier losses but strong data keeps euro firm

The dollar inched up, reversing some of its earlier losses as market players awaited this evening's release of the minutes to the last meeting of the US Federal Reserve's rate-setting body, while strong data boosted the euro. The dollar has had a choppy ride lately, initially gaining last night after the appointment of Goldman Sachs CEO Henry Paulson as US Treasury Secretary to replace John Snow. It then fell back down, however, after Paulson expressed a desire in his acceptance speech for US exporters to compete in open and competitive markets, continuing speculation of a move away from the strong dollar policy. Today, focus will centre on the release of the FOMC minutes, where investors will be looking to gauge just how concerned US rate-setters are about the recent rise in core inflation as a signal of whether they are likely to pause in hiking rates next month or not. "We will read the minutes in an effort to decipher the depth of concern over the rise in core inflation measures given the Fed's forecast that growth is likely to moderate to a more sustainable pace during the year," said Mike Carey at Calyon. Elsewhere, the euro was firmer after strong euro zone inflation and sentiment data, as well as solid German retail sales and jobless data increased the chances that the European Central Bank will raise interest rates by 50 basis points next week. Crucially, euro zone HICP inflation data rose to 2.5 pct in May from 2.4 pct in April, against expectations for an unchanged reading. "When taken together with yesterday's robust monetary data today's figures may even add to speculation of a 50 basis point move," said Lucy Hartiss at Capital Economics. The pound dipped after a series of UK data this morning dampened hopes for a Bank of England interest rate hike in the coming months. Data from the Bank of England showed UK mortgage lending slowed in April, while mortgage approvals fell to their lowest level in seven months. To add to that, the Nationwide house price survey and the latest GfK consumer confidence survey also came in below expectations. Meanwhile, a strong headline reading in the CBI retail sales survey was offset by details suggesting that retailers are shedding jobs in order to avoid raising prices. "These data reinforce the likelihood that the MPC will remain in 'wait and see' mode - comforted by stronger Q2 retail sales that the weakness seen in Q1 was temporary, but not able to be confident in a further acceleration in demand given weakness in lead guides," said Michael Saunders at Citigroup.

© 1999-2024 Forex EuroClub
All rights reserved