Concerns within the US market boost the trade deficit, mainly due that oil prices will curb spending and will continue in the brief term. The Federal Reserve remains very likely to raise interest rates in November, but will find it hard to justify a transfer beyond 2.0%. A substantial erosion of inflows and the decrease in capital flows will increase dollar vulnerability when Wall Street stays on the defensive. There's a threat of momentum and there'll also be industrial dollar hedging's danger. Political uncertainty will make it more easy to market the dollar even though there's the possibility for some rally following the election supposing there's a outcome. The dollar will rally occasionally, but the trend is for dollar depreciation and there's a 30-40 % possibility this season that the US money will weaken to a record low.

US data releases

Overseas capital inflows US$59.0bn Aug (US$63.1bn Jul)
Consumer costs 0.2% Nominal ( 0.1% Nominal)
Philadelphia Fed index 28.5 October ( 13.5 Sep)
Jobless claims 329,000 week (354,000 prev)

Market investigation

The dollar has stayed on the defensive within the last week, jeopardized by a deterioration in growing sentiment and confidence. The dollar weakened into a low of 1.2650 on 2 events and support here was under significant danger in New York on Friday with a decrease to 1.2680.

The dollar was sabotaged by capital inflows information which listed a slowdown in inflows into US$59.0bn from US$63.0bn the preceding month. The margins have narrowed over the previous couple of months though the trade deficit was covered by capital inflows. Early in 2004, inflows were double the size of this shortage, but the August figure was just 1.1 times the yearly trade shortfall. The composition of inflows was worrying because there were a decrease in bond inflows along with equity outflows. This may leave the buck increasingly dependent on capital inflows. There's been evidence of increased systemic dollar revenue over the last week and also the transfer above EUR1.25/US$ increases the threat that commercial hedging increases again. Markets will speculate a replica of 2003 past if the dollar dropped sharply during the quarter. This is very likely to strengthen sentiment that is negative and there's a danger of US money losses and record lows.

The headline inflation figure was consistent with expectations in 0.2%, but there was a 0.3% rise in inherent expectations because of a sharp rise in living costs. The inflation that is higher there's still very likely to be a more Fed rate hike for November and will keep some pressure to get a tighter monetary policy. The problem for the buck is the fact that it's going to be difficult to warrant rate rises that are additional particularly if oil prices stay high.

The election is going to have a effect, with doubt likely unless Bush can open-up an opinion poll lead to 5 percent, to unsettle the US money. When a success is, the dollar will be prone to rally in the brief term. There would be doubts over policies and dollar power seems improbable.

The comments from ECB officials indies that the bank is comfortable with a company Euro because it'll curb pressure. Markets that are disorderly will not be wanted by the ECB, but there's not likely to be significant resistance to Euro gains that are slow. Support will be voiced by the US government but there's no prospect of intervention. This will raise the near-term hazard profile of the dollar. The Euro will, however be controlled from the fact that we now have a number of Euro places that are long along with a correction can't be ruled out.

Analysis provided by http://www.investica.co.uk