Pressure For G7 Action

The dollar will continue to gain structural support from the severe liquidity crisis in global credit markets. Nevertheless, it will be increasingly difficult for the US currency to sustain strength given the underlying US fears.

Sentiment surrounding the financial markets initially improved following the co-ordinated interest rate cuts on Wednesday and this lessened dollar demand slightly. Underlying tensions were still severe and sentiment deteriorated again later in the session as credit spreads failed to narrow.

The US Treasury stated that it would consider buying direct stakes in the banks and markets will be looking for further measures at the G7 meetings on Friday and over the weekend. Wall Street was subjected to further heavy selling pressure later in the US session and the Euro dipped to test levels near 1.36 as there were renewed losses on the crosses. If US economic fears increase, then the dollar will find it more difficult to gain support.

The panic in global markets has still tended to dominate over the past 24 hours and the dollar pushed beyond 1.3550 against the Euro in Asian trading on Friday. Any move to insure US bank deposits would tend to be a negative medium-term dollar factor, but the US currency was still finding support on Friday as market tensions remained severe.

Investica
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