Dollar rally is likely to spill over

Dubai: The dollar rally is likely to spill over to this week as investors bet the Federal Reserve could increase interest rates in the coming months. However, they are sceptical that additional bad news from the US financial sector could sour the positive sentiment.

Euro

The dollar commenced last week on a strong note as top Treasury and Fed officials voiced concern about its recent slide, raising the chances that officials could step into the foreign exchange market to support the US currency.

Those gains were wiped out a day later when European Central Bank President Jean-Claude Trichet said euro zone interest rates could rise in July to counter inflation, nudging the euro towards $1.5845.

The dollar also got a boost from Lehman Brothers Holdings's plans to raise $6 billion in fresh capital after posting a $2.77 billion second-quarter loss.

The euro ended the week 2.7 per cent weaker against the dollar, its biggest weekly slide since January 2005, while the dollar index, a gauge of the US unit against six major currencies, also had its best week in more than three years.

Range for previous week: $1.5376-$1.5797 (Dh5.6476- Dh5.8022). Range for this week: $1.5200-$1.5500 (Dh5.5829-Dh 5.6931).

Yen

In a widely-expected move, the Bank of Japan (BoJ) voted unanimously to leave its key interest rates target unchanged at 0.5 per cent on Friday.

The dollar hit a four-month high of 108.38 yen as investors booked profits from last week's rally as G8 finance ministers gathered in Japan to discuss economic issues.

Range for previous week: 104.42 yen-108.39 yen (Dh0.03388-Dh0.035175). Range for this week: 106.50 yen-109.50 yen (Dh0.033543- Dh0.034488).

Sterling

Sterling took a back seat against the dollar after a series of weak economic data compounded gloom about the health of the British economy.

An unhealthy mix of slowing growth and high inflation is complicating the Bank of England's (BoE) rate outlook, as surging oil prices are keeping the central bank from lowering rates in an attempt to kick-start the economy.

In a rare bit of positive news for Britain's economy, data on Friday showed a 2.1 per cent rise in weekly department store sales in UK retailer John Lewis, breaking a four-week losing streak. Most economists remain convinced that the BoE will slash interest rates by the end of this year.

The BoE this week will release the minutes of its policy meeting, when it left interest rates unchanged for the second month in a row.

Range for previous week: $1.9429-$1.9752 (Dh7.1362- Dh7.2549). Range for this week: $1.9300-$1.9600 (Dh7.0888-Dh 7.1990).