Currency markets seek clues from G7 meeting

Markets await the G7 meeting this weekend for clues on outlook of the yen's trend. The European Central Bank and Bank of England left interest rates unchanged at 3.5 per cent and 5.25 per cent respectively. However, speculations that ECB might increase interest rates next month pushed the euro higher.

Euro

The European single currency fell at the start of the week after a key measure of the US services sector came in stronger than expected. The US ISM non-manufacturing index increased to 59.0 in January from 56.7 the previous month.

On the other hand, the euro shrugged off a survey showing the euro zone's service business activity index rose unexpectedly to a six-month high in January.

The single currency also was weighed by weaker-than-expected European data, which showed euro zone retail sales rallied by only 0.3 per cent in January compared with a forecast of 1.1 per cent rise. Moreover, German industrial orders surprisingly fell 0.2 per cent in December, below markets expectations of an increase of 0.6 per cent.

This week, markets will keep a close eye on the US Fed Chairman Bernanke's semi-annual policy testimony to Congress. On this side of the Atlantic, euro zone growth data and Germany's ZEW business sentiment survey will also be closely monitored for clues on the direction of euro zone interest rates.

Last week's range: $1.2910-$1.3048 (Dh4.7418 - Dh4.7925)

Range for this week: $1.2860 - $1.3160 (Dh4.7235 - Dh4.8337)

Yen

The Japanese currency rallied against the dollar and the euro at the beginning of the week on growing concerns that the yen's weakness may be discussed in the G7 meeting. As the week advanced, the yen trimmed its gains against the dollar and the euro on doubts that the G7 meeting would take any action to stem the Japanese currency's decline. US Treasury Henry Paulson said that the yen's value is set by market fundamentals, indicating the US government does not see a weak yen as a problem.

Last week's range: 119.95 yen to 121.78 yen (Dh0.030161-Dh0.030621)

Range for this week: 120.10 yen to 123.10 yen (Dh0.029838-Dh0.030583)

Sterling

Sterling tumbled against the dollar and euro at the start of the week after the British services Purchasing Managers Index fell to a four-month low of 59.2 in January from December's near decade high of 60.6.

In addition, UK industrial output unexpectedly fell in December as mild weather and increased imports dented domestic gas production.

Later in the week, the pound pared some of its losses after a robust UK retail sales survey, which boosted expectations for higher interest rates this year. The British Retail Consortium said UK retail sales enjoyed their strongest January for three years, with growth accelerating at the fastest pace since July.

Close to the weekend, sterling fell sharply on data showing a bigger than expected British trade deficit and after the Bank of England kept interest rates unchanged at 5.25 per cent. Britain's goods trade gap grew more than expected to £7.142 billion in December from £6.871 billion in November.

In the week ahead, British consumer inflation will be closely watched for clues on the outlook of the UK interest rates.

Last week's range: $1.9455 to $1.9737 (Dh7.1458 to Dh7.2494).

Range for this week: $1.9350 - $1.9650 (Dh7.1073 - Dh7.2174).