The Euro was unable to hold above the 1.40 level in Asia on Friday and weakened significantly in European trading. Risk appetite was generally weaker which curbed immediate demand for the Euro and also triggered defensive demand for the US currency.
The Euro was also undermined by renewed fears over the outlook for Eastern Europe and the regional banking sector, although confidence was underpinned to some extent by a better than expected reading for French industrial production.
The US University of Michigan consumer confidence data was weaker than expected with a decline to 64.6 in July from a revised 70.8 the previous month. The decline will reinforce fears that the economy will not be able to sustain any improvement as rising unemployment saps confidence and spending. The retail sales data will be watched closely next week for further evidence on spending levels.
The US trade deficit was narrower than expected with a dip to US$26.0bn from a revised US$28.8bn the previous month. Imports continued to decline while there was a small increase in exports which pushed the deficit to the lowest level for nine years.
The narrower trade deficit will provide some degree of support to second-quarter GDP while the deficit decline will also lessen the need for capital inflows.
The dollar was unable to sustain gains beyond 1.39 in US trading and dipped to 1.3965 as markets were still unable to break major technical levels.
By: Darrell Jobman
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