Dollar Supported by Oil Prices Correction

After reaching fresh record highs, oil prices eased on Friday, giving the Dollar some support in the early trading; but the US currency stayed in sight for a one-month low against the Euro on worries that inflation could lead to a deeper US slowdown. The Dollar traded at 1.5725 against the Euro at 7:00am GMT. The Dollar tends to move in the opposite direction of the oil, and it registered a hit on Thursday as the oil traded above $135. Also, earlier this week, the Federal Reserve downgraded its 2008 US economic growth forecast and raised its inflation outlook.

The Dollar traded at 104.03 against the Yen at 7:00am GMT, after slipping below 103 Yen yesterday. The Yen came under pressure as rising energy prices would also hurt Japan's growth, which is showing signs of slowdown. Traders said the Dollar was supported by buying from Japanese retail investors and importers but resistance was firm around 105 Yen due to Japanese exporter selling.

The Euro was supported by solid data that came from the Euro Zone's strongest economy, Germany, which leaded to speculation that the European Central Bank was more likely to raise interest rates than to cut, after keeping them on hold at 4 percent this month. The currency was little changed against the Yen at 163.74 in the early trading and it dropped to 163.55 at 8:00am GMT.

The Pound fell against the Dollar before a government report that may show UK economic growth in the first quarter of the year matched the slowest pace in three years. The British currency also traded near the weakest level against the Euro. The Pound traded at 1.9773 against the Dollar and at 0.7949 against the Euro at 8:00am GMT. Later today will be revealed UK's revised GDP, which is expected to stay at the 0.4 percent level.

US sales, revealed later today, probably fell in April to a record low, signalling no let-up in the housing recession and pushing the Dollar down, economists believe. According to a Bloomberg News survey to 67 economists, the National Association of Realtors may report that home resales dropped 1.6 percent to a 4.85 million. “As the Dollar lacks direction, the focus will be on crude if home sales data come weak as expected”, said Tomoko Fujii, Bank of America's head of economics and strategy for Japan.

Finotec Group Inc.

Posted in: Economy,Finance and Investment,Forex