Is Dollar Dominated by Doubtful Prospects of US Economy?

Some experts believe that the dollar will increase in connection with forecasts of American economists on GDP growth
The dollar rate has recommenced the decline with respect to European currencies at the early trades in London. The yen rate is steadily approaching the level of Y120.

Analysts say that the IFO business climate index increased from 88.8 points in June to 89.2 points in July and say it is the basic factor of euro increase now. There are many analysts who are inclined to recollect older problems of the dollar now. They say that the recent revival of the dollar was just a strong cyclic correction in the structure of the long-term structural tendency to the dollar reduction.
Analysts with Credit Agricole Indosuez say that good macroeconomic data and corporate reports rendered considerable support to the dollar. "But the factors won't be enough to resist the negative effect of the continuous structural dollar problems. The US's commercial deficit, the budgetary deficit and forecasts for the second part of the year are the key factors here." The analysts add that the better-than-expected orders for durable goods in June and the latest weekly report on the unemployment rate didn't help the dollar at the end of the past week.

Meanwhile, the latest estimate of the US Treasury on quarterly requirements for new loans must serve a reminder of "the spiral winding of the budgetary deficit that restricts the dollar increase", specialists with the German bank WestLB say. In May, the Treasury report on new loans for the current quarter made up $76 billion. Revised data are to be reported today. Morgan Stanley economists estimate the Treasury's needs at $134 billion.

Nevertheless, other experts believe that the dollar will increase in connection with forecasts of American economists on GDP growth. BNP Paribas analysts say that the dollar will further increase on condition that there will be more positive economic symptoms and the stock market will keep on consolidating. BNP experts add: "The stock markets together with the global economic revival are the key factor for currencies; increasing shares will push the dollar up." They predict that the euro-to-dollar rate will face the strongest resistance within the range of 1.1535 – 1.1620.

Sterling remained stable this morning and was traded higher than $1.62 as financial markets doubt that the Bank of England's monetary policy will further relax. Next time the Monetary Policy Committee is to gather will be August 7.

ForexPF special to PRAVDA.Ru