NEWS / Central Banks

Dollar driven by Fed expectations

The dollar strengthened back to 1.2570 against the Euro later in New York on Tuesday and held firm at close to 1.2570 in early Europe on Wednesday.

US consumer confidence rose to 106.5 in July from 105.4 the previous month. Given that energy prices have been rising, the firm reading for confidence suggests that there is optimism over the jobs market. US existing home sales fell by 1.3% in June to an annual rate of 6.62mn which again was slightly above market expectations.

The market was positioned for weak data which helped the dollar rebound and futures markets pushed the probability of an August rate increase back to above the 50% level. The Beige Book on Wednesday will be monitored closely for evidence on inflationary pressure and the dollar will be at risk again if data later this week is below expectations.

The German IFO index weakened slightly to 105.6 in July from 106.8 in June, but this is still at an historically high level.