Business | Markets
Dollar could fall to new depths against the euro
Investors still hold overweight positions that could force the beleaguered greenback to lower territory as they scramble to sell.
- Agencies
- Published: 00:55 March 30, 2008
Dubai: The dollar has suffered sharp falls this year as investors still hold overweight positions that could force the greenback to new depths against the euro as they scramble to sell.
The US economy has been battered by a collapse in the housing market and a banking sector severely troubled by the credit crunch, prompting fears of a full-blown recession.
Meanwhile the European Commission has expressed concern that the euro's rise added to strengthening headwinds facing the eurozone. The euro hit all-time highs at just above $1.59 on March 17. it has since weakened, but points towards a rise again.
Euro
The dollar began last week on strong ground, appreciating against the euro as investors sold commodities such as gold and oil and bought back the US currency before the end of the first quarter. However, this gain was short lived with investors going short dollars on the back of persistent worries over the health of the US economy.
The euro appreciated by more than one per cent against the greenback after data released revealed that US consumer confidence in March plunged to a five-year low, while expectations for the future dropped to their lowest level in 34 years. A separate report also revealed that US home prices in the month of January decreased in 16 out of the 20 regions measured.
As the week progressed the euro moved from strength to strength against its US counterpart. A rise in German business sentiment dampened expectations of a near-term euro zone interest rate cut. The headline Ifo index rose to 104.8 in March from 104.1, rising to its strongest reading since late last August.
The forecast was for a fall to 103.4. Euribor interest rate futures turned negative after the data as the money market trimmed bets for ECB rate cuts from the current four per cent. They are now pricing in only a two in three chance of an interest rate cut by year-end, compared to having factored in more that two 25 basis point cuts a week ago.
As the week came to an end the dollar recovered a little ground against the euro. A report released revealed that the US economy grew in line with market expectations in the fourth quarter, easing fears of a much steeper slowdown. Dollar support also came in the form of news that the interbank cost of borrowing short-term sterling, euro and dollar funds fell. Banks are starting to anticipate slightly easier funding conditions in the second quarter of the year.
Range last week: $1.5340-$1.5858 (Dh5.6359 to Dh5.8262).
Range for this week: $1.5650-$1.5950 (Dh5.7498- Dh5.8600)
Yen
The greenback steadied against the yen at the start of the week. A government report, showed large Japanese firms have grown pessimistic about business conditions, igniting concerns that the Japanese economy may follow the Unites States into a recession.
By mid-week Japan's Nikkei average fell 0.3 per cent as exporters such as Canon slipped on a stronger yen and many shares fell after the date passes for investors to get the latest dividend. However, data revealed that Japan's exports rose a little more than expected in February from a year earlier.
A solid shipments of Japanese goods to Asia and Europe made up for a fall in exports to the Unites States.
As the week came to an end Japan's Finance Minister Fukushiro Nukaga said that the unrealised losses on Japan's $1 trillion foreign currency reserves amount to approximately 18.5 trillion yen when the dollar trades at approximately 100 yen.
He further commented that a strong yen will benefit the Japanese economy in the medium to long term.
Range last week: 98.54 yen-101.03 yen (Dh0.036365 to Dh0.037284).
Range for this week: 97.70 yen-100.70 yen (Dh0.03648 to Dh0.037605).
Sterling
The British pound held steady against the dollar and euro at the start of the week, but soon appreciated after Bank of England (BoE) Governor Mervyn King said that inflation was seen rising to around three per cent.
However, the pound soon lost ground against the dollar and headed towards record lows against the euro after BoE policymaker Charles Bean told UK Treasury Committee that the risks to sterling were on the downside, given the size of Britain's current account deficit.
As the week came to an end the pound appreciated against the dollar and the euro. Data from the Confederation of British Industry said its distributive trade survey's reported sales balance rose to +1 in March from -3 in February, exceeding expectations for a -5 reading.
Range last week: $1.9847-$2.0192 (Dh7.2918- Dh7.4185).
Range for this week: $1.9780-$2.0080 (Dh7.2672- Dh7.3774).
- HSBC Global Markets Middle East
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