Weekly Market analysis - Dollar

Source: ADVFN Newsdesk <newsdesk@advfn.co.uk>

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There have been further concerns surrounding the US manufacturing sector, especially with a strong dollar, but the wider economy has maintained a solid tone.  There are further expectations that the Federal Reserve will move to raise interest rates at the September meeting which will provide underlying dollar support. It could still prove to be difficult to sustain dollar gains, especially if the Fed plays down the scope for rate hikes. The dollar is still poised to gain support from capital flows into the US from emerging markets and a forced covering of carry trades. Overall, there should be solid underlying support for the US currency even if overall gains are limited from current levels.
 
The dollar maintained a generally firm tone during the week with a further notable advance and multi-year highs against commodity and emerging-market currencies, but it was unable to sustain an advance against the Euro.

US existing home sales data was again stronger than expected at an annual rate of 5.49mn for June from a revised 5.32mn previously and at the highest levels since February 2007. Within the data, there was also a strong reading for prices with the median reading at an all-time high. The data overall maintained confidence in the US outlook and expectations that the Fed would push towards tightening this quarter.

The jobless claims data was much stronger than expected with a decline to 255,000 in the latest week from 281,000 previously and the lowest level since 1973. Although potentially distorted by seasonal factors, there will be confidence that the labour market is continuing to strengthen. This will also increase pressure for the Federal Reserve to tighten policy given evidence of further labour-market strengthening. There will be expectations of at least a slightly more hawkish policy statement at Wednesday’s Fed meeting