NEWS / Foreign Exchange

Dollar consolidates last week's gains as traders wait for inflation data

September 11th - With limited directional information around at the start of the trading week, currency markets could be in for a volatile run until some consensus starts to emerge. Numbers due on Thursday and Friday should provide further insight as to inflationary pressures in the US, but critically the attention right now remains focused on whether or not the Fed needs to hike interest rates again to keep the economy on something of an even keel. The market is clearly pricing in some risk of another quarter point being added perhaps as soon as next week but expect that FOMC verdict to be closely watched and there??™s certainly scope for more movement off the back of this announcement, regardless of its direction. In the shorter term UK PPI data today and the CPI reading tomorrow can both expect to come under scrutiny and should provide those trading cable with something to work on as questions continue to linger over the validity of the surprise rate increase implemented by the Bank of England earlier in the summer. The pound has seen a significant retreat from the 1.90 level against the dollar of late and many were expecting a test on 2.00 to be made. Arguably however, if US yields are going to be maintained through into the early part of 2007 by which time the Fed expects to see inflationary pressures pick up again, cable could struggle to push much higher.

David Hutchings