Treasury - Daily Forex for day 18.01.2005

The dollar strengthened both against the euro and the yen yesterday as the market began focusing again on the prospects of rising interest rates in the United States. The market expects the U.S. Federal Reserve to raise the short-term interest rate to 3.0% in three steps from current 2.25% by May. This would widen the yield advantage over the euro zone, which is at 2.0% at present. The dollar also got a boost from speculation that U.S. President Bush will soon reveal a plan to cut the U.S. budget deficit. Today the market will be paying attention to U.S. capital flows data to see whether the economy is able to attract enough capital to finance a huge current account deficit.

The Czech crown firmed against the euro on Monday, but the currency took little notice of stronger-than-expected retail sales data. November sales increased by 8.0% y-o-y, outpacing market prediction for a 5.8% rise.