US dollar: No 'end point' to fiscal integration at EU summit likely to lend support USD going forward

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Published on Monday, 25 June 2012 11:18

Written by Rob Samson

"We prefer remaining long USD over the next week, especially against European currencies" - Barclays.

The US Dollar (Currency:USD) is tipped to maintain strength going through this week as EU leaders continue with their pedestrian approach to the Eurozone crisis.

A look at the spot rates shows the pound / US dollar rate at 1.5548. The euro / dollar exchange rate is 0.71 pct down at 1.2479.

As long as no concrete solutions are forthcoming the Eurozone crisis will continue to negatively impact the euro. (PS. Please see our IMT site for the latest exchange rate forecasts, access free via this Facebook entrance).



"We believe this week's (EU) summit will yield more strong rhetoric in support of a roadmap towards tighter fiscal integration, rather than the end point itself. Moreover, we also expect the significant preconditions needed along the way to be stressed. This may disappoint markets to some extent. We prefer remaining long USD over the next week, especially against European currencies," says a note from Barclays.

The dollar is thriving in an environment that saw the threat of further quantitative easing removed last week.

"The likelihood of Fed easing has gone up but is dependent on data. The USD should hold against funding currencies since the underlying trend has not shifted yet," say Barclays.

So what could turn the tide against the all-powerful US dollar?

According to Barclays a downside risk comes in the form of a spike in oil prices and/or a sharp fall in  economic momentum would reinvigorate the debate over QE, weighing on the USD. 

For now though we keep our eyes on the Eurozone headline flow. The US dollar is likely to remain well bid.