Friday, October 21, 2005


US Dollar Hurt By Inflation Talk, Narrower Spreads

The worlds central bankers are talking about inflation. "The dollar stayed on the back foot as players took advantage of narrowing bond yield differentials between the US and elsewhere to move out of the US currency. 'The dollar had strengthened because of yield differentials. Now central bankers around the world, not just in the US, are cranking up the threat of inflation. The differential is now narrower,' said Marios Maratheftis."

"Central bankers as far flung as South Africa and Canada have been talking about rising price pressures. In Europe too, the rhetoric has been decidedly hawkish. Today, European Central Bank chief economist Otmar Issing warned that the latest euro zone inflation numbers are far above the levels compatible with the goal of price stability."

"Some analysts also believe that all the focus on inflation has raised concerns about the potential impact on growth. 'We are becoming concerned that more hawkish Fed comments on the need to curb inflationary pressures is now damaging rather than supporting investor sentiment,' said Mansoor Mohi-uddin at UBS."

"'As investors worry about tighter Fed policy, stronger economic data is not helping the dollar,' said Mohi-uddin. In data out yesterday US jobless claims fell to 355,000 against market consensus of 365,000 while the Philly Fed survey rose sharply to 17.3 in October from 2.2 in September. Both failed to spark a dollar rally."

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