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Dollar continues to be under pressure
The US dollar ended the week under pressure on strong oil and deepening worries about credit-related losses ignited by news of potential funding problems for Fannie Mae and Freddie Mac, the two largest US mortgage funders.
- Staff Report
- Published: 23:18 July 12, 2008
Dubai: The US dollar ended the week under pressure on strong oil and deepening worries about credit-related losses ignited by news of potential funding problems for Fannie Mae and Freddie Mac, the two largest US mortgage funders.
In the coming week, markets await the interest rate announcement by Bank of Japan (BoJ) and the US June retail sales figures.
Euro
The euro commenced the week on a low note after having been sold off following the comments of European Central Bank president Jean-Claude Trichet previous week after the ECB interest-rate setting meeting. The US currency was also supported against the euro by a drop in oil prices earlier in the week.
Further, Federal Reserve chairman Ben Bernanke commented that the Fed may keep an emergency lending facility for big Wall Street firms open longer than it initially intended, which also lent support to the US dollar.
Markets, however continued to be spooked by worries that Government Sponsored Enterprises Fannie Mae and Freddie Mac, the two largest US mortgage funders, may have trouble raising enough money to keep buying mortgages.
The two agencies finance nearly half of US homes and were they unable to borrow or find funding too costly, they would not be able to buy mortgages from lenders making it far more difficult for people to obtain home loans.
US Treasury Secretary Henry Paulson said his aim at present is to back the agencies in their "current form", dampening market speculation of a government bailout.
A key US senator, however, said the Fed was considering allowing Fannie and Freddie to borrow directly from the central bank.
Worries about the credit turmoil sparked by the troubles of Fannie and Freddie pushed the dollar down, and euro touched a near two-and-half-month month high as the week closed.
The markets also interpreted the housing agencies' troubles as constraints on the Fed's ability to raise interest rates in the near future.
In other news of interest, oil touched a new record high on the ongoing geopolitical tensions involving Iran, fears of unrest in oil producer Nigeria and a looming strike of Brazilian oil workers.
Range for previous week: $1.5608-$1.5946 (Dh5.7328- Dh5.8570)
Range for this week: $1.5700-$1.6000 (Dh5.7666- Dh5.8768)
Yen
The Japanese yen remained mostly range-bound against the dollar during the week, supported by a strong demand for foreign assets by Japanese retail investors particularly around this time of the year when semi-annual bonus payments are made.
Yen was also supported by demand for dollars by Japanese importers, which picked up after the fall in oil earlier this week.
In bullion news, gold rallied more than two per cent to touch a four-month high as the week closed, buoyed by a weak dollar, soaring oil and floundering equity markets on credit crisis fears.
Range for previous week: 105.63 yen-107.75 yen (Dh0.034088-Dh0.034772)
Range for this week: 105.00 yen-108.00 yen (Dh0.034009-Dh0.034981)
Sterling
Sterling came under pressure against the dollar and euro after the Bank of England's (BoE) widely expected decision to keep interest rates steady at five per cent.
The BoE did not issue any statement as is usual whenever it leaves rates steady, but market analysts said that the verdict highlighted the twin threats of a slowing economy and surging inflation faced by the policy-makers.
Further bad news on the economy came earlier after Britain's largest mortgage lender HBOS said house prices fell two per cent in June, twice the amount expected by the market.
Range for previous week: $1.9647-$1.9959 (Dh7.2163- Dh7.3309)
Range for this week: $1.9600-$1.9900 (Dh7.1991- Dh7.3093)
HSBC Global Market Middle East
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