Dollar makes the most of EU crisis

Dubai:  The US dollar finished the week sharply higher against all major counterparts except the Japanese yen, rallying on similarly dramatic declines in the US S&P 500 and other key financial risk barometers.

The continued euro zone fiscal crises led to incredible single currency losses against the safe haven dollar and similarly risk-friendly Japanese yen.

Looking to the week ahead, a close eye should be kept on any and all developments coming out of the euro zone.

There are fears that contagion will continue to affect European currencies, and this could also spread to undermine wider risk appetite. These fears could continue to be important in providing near-term dollar support.

Euro

The euro tumbled to fresh one year lows against the dollar, amid fears that aid for Greece may not prevent debt crises in other euro zone countries. The euro broke below 1.30 against the dollar for the first time since April, and reached a low of 1.2585 before closing trading on Friday at 1.2759.

The euro zone structural outlook will remain a very important focus in the short-term with governments finding it very difficult to contain the contagion threat, especially as market rumours are likely to remain a key feature. The European Central Bank will also be an important focus as there are fears that the bank's independence could be compromised in order to protect the euro.

Range for previous week: $1.2520 - $1.3340 (Dh4.5985 - Dh4.8997)

Range for this week: $1.2400 - $1.3460 (Dh4.5545 - Dh4.9438)

Sterling

Sterling dropped significantly towards the end of the week, as the UK election failed to produce an outright winner, fuelling concerns that measures to tame the budget deficit will be delayed. The pound dropped to a 13 month low against the dollar after David Cameron's Conservative party fell short of winning a majority in Parliament, however rebounded slightly amid rumours that a minority government will be formed.

Looking ahead, the Pound may remain under pressure if the Bank of England continues to sit on the sidelines following the election. Concerns are that the lack of majority from any political party will prevent measures from getting passed in order to help cut the budget deficit.

Range for previous week: $1.5319 - $1.4475 (Dh5.6266- Dh5.3166)

Range for this week: $1.5200 - $1.5288 (Dh5.5829 - Dh5.6152)

Yen

The Yen appreciated more than 5 per cent against its major counterparts following the panic in the financial markets, while USD/JPY tumbled to a low of 88.21 on Thursday, marking its biggest decline since October 2008. As a result, the currency may continue to strengthen in the near future, as investors scale back their risk appetite.

The Bank of Japan is scheduled to release its April meeting minutes tomorrow, and the central bank is likely to maintain a cautious outlook for the region, as the appreciation in the exchange rate continues to weight on the prospects for future growth.

Over the coming week, the yen is expected to retain its strong correlation with risk trends.

Range for previous week: 88.00 yen - 94.98 yen (Dh0.03867 - Dh0.04173)

Range for this week: 87.00 yen - 96.00 yen (Dh0.03872 - Dh0.04221)