Tuesday, October 04, 2005


US Dollar At 'Critical Resistance'

The Forex news for the morning. "LONDON - The dollar stayed well supported midday as all eyes remained fixed on increasing inflationary pressures and the likelihood that US interest rates will continue rising. 'The dollar remains supported by strong cyclical factors, the Fed looks set to continue raising interest rates with Fed Atlanta President Guynn yesterday joining other officials in warning about inflation risks,' said Mansoor Mohiuddin at UBS."

"The series of manufacturing surveys across the industrial world yesterday all revealed a jump in the prices paid component. In the ISM manufacturing survey which measures the performance of the sector in the US, the prices paid component surged to its highest level since October 2004. 'Clearly energy prices are leaving their mark, but how long will it be before this feeds into the wider economy,'said Mitul Kotecha."

" The question now is how much further the dollar can rise as the yen is already at its lowest since May 2004 and the euro at levels not seen since July. 'The dollar is reaching critical resistance levels against the yen and European currencies,' BNP Paribas analysts said in a research note."

"'With markets developing increasingly conflicting signals, the risk of the dollar rally petering out despite rising US interest rate expectations has increased,' they said."

"The ECB decides on interest rates this Thursday. The pound meanwhile, came back from day lows having been sold down on speculation that the Bank of England will be forced to deliver a rate reduction in December due to faltering consumer demand. News today that mortgage equity withdrawal in the second quarter rose from the previous three month period went some way to ally fears that consumer spending will fall away quickly."

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