NEWS / European Community

Euro resists correction

The US currency was unable to sustain a recovery through 1.31 on Monday and weakened to 1.3160 in Europe on Tuesday.

French Finance Minister Breton stated on Monday that there should be collective vigilance over the Euro??™s value while the UNICE lobbying group called for the ECB to consider a pause in interest rate increases. Breton??™s comments weakened the Euro temporarily, but the rhetoric will need to be significantly more aggressive to trigger a substantial Euro correction weaker.

There was no significant economic data on Monday, but there are significant releases on Tuesday which will be important in shaping US interest rate expectations. Headline durable goods orders should fall sharply after the big increase last month and the US currency will be vulnerable if there are weak readings for consumer confidence and existing home sales. More robust data would strengthen the potential for at least a short-term corrective dollar recovery. The outlook for consumer spending is particularly important given the uncertainties over current behaviour. The post-Thanksgiving sales evidence was mixed with aggregated reports of firm sales offset by disappointing estimates from Wal-Mart. Markets will also be anxious for remarks on the economy from Fed Chairman Bernanke on Tuesday. Any tough rhetoric would offer dollar support while a concentration on economic slowdown would tend to undermine the dollar.