by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar was unable to hold stronger than the 1.5750 level on Friday and weakened to test the 1.5850 ahead of the US open.
The provisional University of Michigan consumer confidence index fell further to 63.5 in April from 69.5 the previous month, reinforcing the deterioration in confidence seen over the past few months. The data will maintain fears over consumer spending ahead of the US retail sales report on Monday. US economic fears were also fuelled by weaker than expected earnings from General Electric.
Inflation considerations will also remain an important market factor as the Michigan inflation expectations component rose to 4.8% from 4.3% which was the highest rate since 1990. In addition, there was a strong rise in import prices of 2.8% for the month to give an annual increase of 14.8%.
The combination of weakening confidence and rising inflation pressures continues to illustrate the difficulties faced by the Federal Reserve with markets uncertain over the policy stance at the late-April meeting.
ECB member Weber stated that inflation might have peaked in the March data which will maintain some speculation that the ECB will adopt a looser policy later this year and curb aggressive Euro buying.
The G7 meetings will be watched very closely over the weekend. Government and central bank officials will need to discuss the credit crunch while the US currency market trends will also be an important focus. A strong and unified statement in support of the dollar would provide support to the US currency early next week. In contrast, a lack of agreement and signs of division would tend to weaken the dollar next week.
Domestically, wholesale prices rose 3.9% in the year to March which was the highest figure for 27 years, but markets will not be expecting the Bank of Japan to respond with a tighter monetary policy.
The G7 meetings will be watched closely over the weekend and there will be proposals to ease credit difficulties by relaxing collateral conditions. Any increase in confidence that the authorities can improve credit conditions will tend to boost risk appetite which would also tend to weaken the yen, although caution will still be in evidence.
The dollar attempted to push back above 102.0 in early Europe on Friday as the Nikkei index rallied. Trading conditions were subdued, however, and the US currency was unable to sustain the gains.
Following a decline in US equity futures following the weaker than expected General Electric earnings release, the US currency dipped to lows around 100.60 against the yen before consolidating around 100.90.
The UK currency was unable to hold stronger than the 0.80 level against the Euro on Friday and weakened back to test record lows beyond the 0.8030 level. The UK currency was trapped close to 1.97 against the dollar.
Overall confidence in the economy will remain weak which will continue to undermine Sterling, especially with warnings from the Council of Mortgage Lenders (CML) that mortgage ending will contract sharply over the next year.
The UK consumer and producer prices data will be watched very closely at the beginning of next week to assess the inflation trends, especially as it will also illustrate how much flexibility the Bank of England will have on interest rates.
The Euro strengthened to 1.59 against the franc on Friday, but was unable to sustain the gains and weakened back to test support levels below 1.58. The US currency dipped to lows near 0.9960 against the franc before consolidating around parity in New York.
The renewed decline in major equity markets provided short-term support to the Swiss franc. The G7 statements will be watched closely over the weekend as any measures to alleviate credit stresses would tend to lessen near-term demand for the Swiss currency.
The Australian dollar challenged resistance levels above the 0.9350 level in local trading on Friday. The domestic influences have been limited with the employment reports earlier in the week helping to offset short-term fears over the deteriorating confidence indicators. Commodity prices are still firm which helped underpin the currency.
The Australian dollar still struggled to sustain the gains and weakened during European trading as equity markets reversed early gains. There is also still the fear that domestic conditions will deteriorate which will curb buying support.