Strong US data pushed the Euro down to 1.1860 on Tuesday before a recovery back to 1.1915 in late New York as the dollar was...

... unable to hold gains.

The dollar was holding little changed in early
Europe on Wednesday with caution ahead of the important US Wednesday events.


The US retail sales report was much
stronger than expected with a 2.3% headline increase for January after a
downwardly revised 0.4% rise for December. The report will boost near-term
confidence over the economy and support interest rate expectations, although the
data is likely to have been distorted by warm January weather. In this context,
the growth data for January as a whole is likely to support the economy. There
will, however, be the risk of a string of poor figures for February which will
be reported during March as January weather-related distortions are reversed.
Strong growth figures will also cause some unease over the US trade
deficit.

With the next Fed meeting late in
March, the data during that month would still have a significant impact in
shaping Fed considerations and persistent weakness would be significant. In the
shorter term, attention will focus on Bernanke’s congressional testimony on
Wednesday and futures markets are giving close to a 80% chance of 5.0% interest
rates by May. The dollar will, therefore, find it very difficult to secure
further buying interest on yield grounds alone.


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