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CONCERNS OVER THE US ECONOMIC OUTLOOK WEIGHS ON DOLLAR MOVEMENT

 
15 July 2010

World stocks slipped from a three-week high on Thursday after the Federal Reserve suggested additional measures may be needed to combat a weakening economy. This in turn has weighed down on price movement with the US Dollar.

Minutes from the Fed’s June meeting showed officials were concerned with the pace of the economic recovery and felt they should be ready to consider additional steps if an already softening outlook took a noticeable turn for the worse.

Concerns about the US economic outlook are weighing on the dollar which trades near a two month low to a basket of currencies. This leaves the euro consolidating gains above the $1.27 level and 1.5341 against the Pound.

Chinese fundamental data also injected caution. The country’s economic growth moderated to 10.3 percent in the second quarter from 11.9 percent in the first quarter, slightly below forecasts of 10.5 percent growth.

Looking at Sterling price movement the Pound got a boost yesterday from stronger than expected UK economic data for the second day in a row. It rose to a two month high to the dollar on the back of news of a continuing fall in unemployment and the largest gain in employment since mid 2006. Sterling however is struggling to make gains against the Euro which seems to remain stable at 1.1974 particulaly as investors look to invest in more growth related currencies.
Today, MPC Member Miles’ speech could offer some clarity on whether his stance on monetary policy is aligned with mainstream thinking on the MPC, or whether like MPC Member Sentance, he too feels it is now time to begin the process of monetary tightening. The minutes from the July MPC meeting, which should reveal the voting breakdown for last week’s meeting, are due to be released on July 21.

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Tom Trevorrow
Currency Analyst / Torfx Currency Brokerage

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