Daily currency analysis -July 29

5.7bn debt write-down

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The dollar found support close to the 1.5750 level on Tuesday and gained sharply in US trading with initial support from a renewed decline in oil and commodity prices. The US currency also gained backing from a recovery in equity prices and fresh capital raising from Merrill Lynch. There was a peak close to 1.5550 in New York with a one-month high on a trade-weighted basis.

The US data continued the pattern seen at the end of last week with a slightly firmer than expected tone. Consumer confidence edged up to 51.9 in July from a revised 51.0 the previous month. Gloom persisted over current conditions, but there was a slight improvement in the expectations component.

The Case-Shiller house-price index was also slightly better than expected with a 15.8% drop in the year to May. There were sharp declines in several cities notably in California and Arizona, but 7 of the 20 cities recorded a monthly advance in prices which suggests that the difficulties are becoming more regional in nature. There will still be caution ahead of key economic data over the second half of this week

The provisional German consumer prices report recorded a 0.6% monthly increase for July which prevented a drop in the inflation rate from 3.3% and the data will keep the ECB on high alert. The Euro will still be hampered by fears over increased capital outflows and a sharp slowdown as French consumer confidence continued to deteriorate.

Yen

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