Monday, October 17, 2005


Dollar Stronger In Busy Week For News

The latest currency news. "The dollar rose against the yen and most other actively traded currencies after China remained vague with the world's top finance ministers about how it would allow freer trading of its yuan. Investors also expect Federal Reserve officials speaking this week will reinforce the need to lift interest rates to stop U.S. inflation from accelerating."

"China's authorities 'affirmed their intention to enhance the flexibility and strengthen the role of market forces in their managed floating exchange-rate regime,' according to a joint U.S.-Chinese statement released today in Beijing, where the Group of 20 meeting was held."

"Higher inflation seems to be the market’s only focus these days as the futures market has now fully priced in at least 2 more rate hikes to 4.25% with a more than 50% likelihood of another rate hike on January 31st to 4.50%. After last Friday’s sharp surge in consumer prices, we saw analysts from the leading investment banks step out to tout the possibility of 5% rates."

"With no less than ten Fed speeches this week..we doubt that the Fed will let the market forget about how concerned they are for inflation. Therefore the risk for the dollar this week appears to be on the upside, but we will first have to see how the results of tomorrow’s TIC report of foreign purchases of US securities fares in the month of August. So far, foreign inflows are expected to reach $60B, which is less than the previous month, but just about meets the funding needs for the same month’s trade deficit."

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