Structural Dollar Support

Daily Forex Fundamentals | Written by Investica | Aug 06 08 10:47 GMT |

Structural support will continue to underpin the dollar, but it will be difficult to secure strong near-term gains from current levels

The dollar strengthened in European trading on Tuesday and sustained the advance with a peak close to 1.5460 ahead of the US open as commodity prices were subjected to further selling pressure while there were reports of strong dollar buying from US accounts.

The US ISM index for the services sector increased to 49.5 in July from 48.2 previously which was slightly above market expectations. The data breakdown was mixed and failed to provide clear direction. The employment component improved, but there was a rise in inventories which will lessen the potential for a sustained recovery in the economy.

As expected, the Federal Reserve held interest rates at 2.00% following the latest FOMC meeting. There was a 10-1 vote with Fisher again dissenting and calling for a hike. The statement was not changed radically from the previous meeting with the Fed uneasy over both growth and inflation aspects. The inflation situation was described as highly uncertain with considerable concern while the labour market had softened further. Markets will remain sceptical that the Fed will tighten policy this year with some disappointment over the Fed stance which will curb dollar buying support as yields will remain low.

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.