Pressure for Dollar Action

There will be increasing pressure, especially from within Europe for a more decisive US defence of the dollar and verbal intervention is liable to increase.

Expectations of divergent trends in US and Euro-zone growth trends will remain important in the short term. Following a firmer than expected German IFO survey, the ECB maintained a tough stance. ECB President Trichet testified to parliament on Wednesday and maintained the recent pattern of comments by ECB officials by concentrating on the inflation risks.

The bank remains extremely anxious to avoid secondary inflation effects and Trichet also stated that the current level of interest rates was appropriate for the conditions. The hawkish stance by Trichet will continue to provide near-term support to the Euro as markets downgrade the potential for interest rate cuts later this year. In contrast, there has been further unease over the US economy following a weak durable goods survey on Wednesday.

The G7 stance will come into greater focus over the next two weeks ahead of the annual meetings in April. There have been reports of increased European irritation over the US attitude towards the dollar and there will be increasing pressure for more substantive US efforts to underpin the US currency.

Investica
http://www.investica.co.uk

Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.