|
|
|
|
|
|
Dollar finds support from rising stocks, but confidence remains shaky Thomson
Financial However, analysts do not expect this to last very long, as the prospect that US interest rates will fall further will push the dollar still lower. 'The Fed's cut will not be a quick fix,' said Hans Redeker, currency strategist at BNP Paribas (other-otc: BNPQY.PK - news - people ). 'The Fed admitting that the emergency rate cut was due to deteriorating economic fundamentals (and financial market volatility) signalled that the Fed had misunderstood the gravity of the housing market slowdown and credit tightening,' he said.
This smacked of panic, and with more bad news coming from ratings downgrades on bond insurers, risk aversion is likely to pick up again. In this climate, the dollar is likely to weaken as it becomes clear the Fed will cut rates further, although its fall will be tempered by safety bids, as investors repatriate capital as they cut down on risky overseas trades. The euro will look to the flash estimate of the PMI for more direction. The manufacturing PMI is seen declining to a provisional 52.0 from 52.6 in December, with the services PMI falling to 52.7 from 53.1. This would result in a decline in the composite PMI, which incorporates both the manufacturing and services surveys, to 52.8 from 53.3. Meanwhile, the pound was firmer after Bank of England Governor Mervyn King signalled in a speech last night that while another rate cut next month is likely, aggressive moves are out of the question due to inflation pressures. Because market conditions are very volatile, analysts warn that this may not provide much strength to the pound -- on views of interest rate differentials -- but may actually weaken it as a sharper economic downturn becomes more likely the longer the BoE refuses to respond.
|
||||
