All eyes on Japanese interest rate decision and BoE meeting

Dubai: In the coming week, markets will await the interest rate decision by the Bank of Japan and the release of the minutes of the Bank of England's December meeting.

Euro

The euro began last week on a strong note supported by European Central Bank (ECB) President Jean Claude Trichet's comments earlier that left open the possibility of higher interest rates next year.

As the markets waited for the interest rate decision by US Federal Reserve due later in the week, the sentiment was favourable for the US currency.

Earlier interest rate cuts by the central banks of Canada and Britain, combined with the proposed US government plan to limit potential mortgage defaults, stirred hopes that the US economy's downturn would be contained.

The dollar however dipped after Swiss bank UBS announced a $10 billion loss in subprime write-downs and said it had obtained a capital injection from a Singapore government entity and an unnamed Middle East investor.

As the week progressed, an interest rate cut of 25 bps by the US Fed was followed by an announcement by the US central bank of a new temporary short-term lending facility to ease the liquidity crisis in credit markets.

The ECB and its counterparts in Canada, Britain and Switzerland announced similar moves along with facilities for foreign exchange swaps.

US Treasury debt prices fell following the announcement as investors poured money into stocks. The euphoria, however, proved short-lived Asian and European stocks fell the next day as the measures were considered insufficient to immediately resolve the ongoing credit crunch.

The dollar, euro and sterling London interbank offered rates (Libor) saw modest falls for two consecutive days following the announcement of the concerted action by central banks.

As the week closed, the dollar was propelled by strong consumer price inflation data, which saw the euro posting its largest daily fall against the dollar in almost three years. The US November consumer price inflation rose 4.3 per cent year-on-year, its highest level since June 2006.

Last week's range: $1.4410-$1.4750 (Dh5.2927-Dh5.4177).

Range for this week: $1.4350-$1.4650 (Dh5.2707- Dh5.3810).

Japanese yen

The Japanese yen commenced the week near one-month lows against the dollar as the US currency remained supported by bullish data released earlier.

The dollar weakened against the yen after the Fed's announcement of an interest rate cut of 25 bps, which disappointed some market participants who were expecting a more aggressive 50 bps cut.

After the announcement of concerted market action by five major central banks, the dollar touched a one-month high against the yen as investors turned less risk-averse.

The yen dipped further against the greenback after the release of US consumer price inflation data. The Japanese currency touched a five-week low against the dollar before ending one per cent lower on the day as the week closed.

Last week's range: 110.46 yen-113.59 yen (Dh0.032336-Dh 0.033252).

Range for this week: 111.50 yen-114.50 yen (Dh0.032079 - Dh0.032942).

Sterling

The British currency commenced the week on a strong note with investors taking profits after a fall sustained by the sterling in the run-up to an interest rate cut by the Bank of England (BoE) earlier.

Annual producer output price inflation data, which surged to a 16-year high, gave further evid-ence of inflationary pressures in the British economy which may make the BoE more reluctant to cut interest rates in the near future.

The pound strengthened against the dollar after the announcement of concerted market action by five major central banks to ease the ongoing liquidity crunch. Sterling, however, fell against a basket of major currencies after the release of weak UK housing data.

The data showed that British house prices fell at their fastest rate since May 2005 in the three months to November.

As the week closed, the pound fell further as the dollar was supported by the strong consumer price inflation figures.

Last week's range: $2.0145-$2.0576 (Dh7.3993- Dh7.5576).

Range for this week: $2.0000-$2.0300 (Dh7.3460-Dh7.4562).

Speculation: Dollar is pressured

Currency speculators increased their bets against the dollar for the first time in five weeks, data from the Commodity Futures Trading Commission showed on Friday.

Net short positions in the US dollar in the week to December 11 rose to $27.2 billion from $25.02 billion in the previous week. But that was still far from the year's high, hit in November at $32.54 billion.

The aggregate US dollar position is derived from the net positions of International Monetary Market speculators in yen, euro, British pound, Swiss franc, Canadian and Australian dollars.

Swiss francs net long positions were down nearly 75 per cent to 1,933 contracts from 7,043 the previous week.

- Reuters