Forex - Dollar rises boosted by stronger US equities

LONDON, Nov. 27, 2007 (Thomson Financial delivered by Newstex) -- The dollar strengthened slightly as a strong opening on Wall Street supported demand for the US currency.

Wall Street opened higher following news overnight that Abu Dhabi Investment Authority will invest 7.5 bln usd in Citigroup (NYSE:C) -- a vote of confidence for the nation's largest bank -- which has suffered losses amid the ongoing crisis in the mortgage market.

The burgeoning risk appetite on US equity markets left weak consumer confidence data sidelined by markets, making no impact at all.

The Conference Board's Consumer Confidence Index fell to 87.3 in November from a revised 95.2 in October, the lowest level in two years, and below Thomson's IFR Markets' consensus estimate for a fall to 90.5.

'Consumer confidence was softer, but we don't really get sense that this is a market that is trading off economic numbers, it's trading more off the equity market,' said Daragh Maher, currency strategist at Calyon.

However, he added that though dollar has risen against the euro in the last couple of hours, 'it's pretty much back to where we started the day.'
The US currency is also still trading at a very historically weak level against the single currency, due to the deteriorating outlook for the US economy, which has led to diverging interest rate prospects for the areas.

'The divergence in policy outlook has been supporting the euro,' said Stephen Pearson, chief currency strategist at Bank of Scotland Treasury.

He added that while some doubts have emerged over the euro zone's economic prospects, 'US interest rates look as though they will be cut a lot'.

Later today, Philadelphia Federal Reserve Bank president Charles Plosser, and Federal Reserve Bank of Chicago president Charles Evans will be speaking later on the economic outlook.

Plosser 'will provide some anecdotal evidence in terms of pass through from the credit shock,' said analysts at BNP Paribas. (OOTC:BPRBF)

'But of more interest is whether Fed policymakers change their hawkish tone,' they added.

Attention will turn to the Federal Reserve's Beige Book tomorrow for hints on the outlook for interest rates.

'Focus remains centred on the Fed's Beige Book report for the Dec 11 FOMC meeting and what potential spin is put on the balance of growth and inflation fundamentals - as possible clues to Fed rate policy intentions ahead,' said David Brown, chief European economist at Bear Stearns. (NYSE:BSC)

'This could have an important bearing on European Central Bank and Bank of England policy ahead,' Brown added.

Also due tomorrow in the world's largest economy are durable goods orders, which are expected to rise slightly be 0.3 pct in October, and by 0.4 pct excluding transportation.