Business | Markets
Dollar recovers against euro as investors seek safe-haven currency
The dollar fell against the euro and a basket of currencies last Monday as risk aversion eased as investors welcomed the US government's $300 billion-plus lifeline to prevent the collapse of Citigroup.
- Special to Gulf News
- Published: 23:31 November 29, 2008
Dubai: The dollar fell against the euro and a basket of currencies last Monday as risk aversion eased as investors welcomed the US government's $300 billion-plus lifeline to prevent the collapse of Citigroup.
The dollar rose against the euro on thin trade on Friday, as weak equity markets and fears of a deepening global recession led investors to seek the US currency as a haven.
Euro
The beginning of the week saw the euro open at 1.2603. It rose up on Monday and experienced a sharp rise on Tuesday. By Friday the euro eased back down to close at 1.2687.
The euro fell briefly on Monday, after a weak reading of a German business poll reminded investors of weakness in the nation's economy and the need for more euro zone interest rate cuts. However later in the day it extended gains as US stocks continued to rally on news of the Citigroup rescue.
In mid-afternoon trading in New York, the euro rose more than 2.5 per cent to trade as high as $1.2901, a two-week high. The euro was also 3.6 per cent higher against the yen at 125.02.
Tuesday saw the euro hit 1.3080, which was the high of the week. It was significant as it broke the resistance level of 1.3 which had prevented previous recoveries. Wednesday saw the euro start its decline, as the market started to consider possible rate cuts, and Thursday saw little activity due to the US market closed for Thanksgiving holidays.
Sterling jumped against a broadly weaker euro on Friday, with the single currency facing pressure as tumbling euro zone inflation left room for aggressive European Central Bank rate cuts.
The euro also weakened against the yen, again due to the possibility of aggressive rate cuts by the European Central Bank.
Provisional figures showed euro area annual inflation plunged to 2.1 per cent in November from 3.2 per cent in October.
Range for previous week: $1.2565-$1.3080 (Dh4.6151- Dh4.8042).
Range for this week: $1.2400-$1.2820 (Dh4.5545- Dh4.7087).
Yen
The dollar and yen gave up broad early gains last Monday as investors eased back from risk averse positions, taking a cue from the Citigroup rescue plan.
The yen had initially pushed higher when news of the bailout for Citi first surfaced, sceptical of its impact on the financial crisis.
The dollar fell two per cent against the yen to a session low on Tuesday as foreign exchange investors squared their positions formonth end ahead of the Thanksgiving Day holiday on Thursday.
Midway through the New York session, the dollar fell as low as 95.10 yen before recovering slightly to 95.17 yen.
The yen rose against the euro and higher-yielding currencies on Wednesday, with struggling European shares helping to spur risk aversion ahead of expected economic stimulus by the European Union.
The dollar was on the back foot against the yen after an $800 billion US plan to rescue its debt market raised concerns about the health of the nation's balance sheet.
The yen gained against the dollar and euro on Thursday as worries about the cost of fiscal stimulus packages and whether they would succeed in limiting a global recession kept the low-yielding currency supported.
The dollar eased against a basket of major currencies as concern over the weak US economy and the impact of a fiscal stimulus on the nation's balance sheet weighed.
The yen kept its strength against the dollar in thin trade on Friday as fears of a long and deep global recession continued to highlight the relative safety of the low-yielding Japanese currency.
Japanese industrial production slid more than expected in October and manufacturers warned of record cuts ahead, in bleak news that points to more trouble for an economy already in recession.
Range for previous week: 94.58 yen to 96.93 yen (Dh0.038834-Dh0.037893).
Range for this week: 93 yen to 97 yen (Dh0.039494- Dh0.037865).
Sterling
Sterling, opening at $1.4926, rose against a weaker dollar last Monday, with surging stocks reflecting an easing of risk aversion and investors showing little immediate reaction to fiscal measures in the government's pre-budget report.
News came with finance minister Alistair Darling telling parliament he would cut sales tax and extend help for small businesses, low earners and households in a package worth up to £16 billion ($30 billion).
But he said tax cuts now would mean rises later, including an increase in income tax for high earners.
Initial reaction to the report had been limited as much of its content was already priced into sterling after media reports ahead of Darling's speech.
Sterling hit a two-week high against the dollar on Tuesday as the US currency came under broad selling pressure after a Federal Reserve plan to boost the mortgage-related debt market quelled some risk aversion.
The dollar's bout of weakness helped the pound to rebound sharply from a slide in early trade.
Sterling slipped against the dollar and yen on Wednesday, retreating from a two-week high against the US currency, as worries over the health of the global economy prompted investors to shed risky positions.
Official data confirmed Britain's economy shrank by 0.5 per cent in the third quarter, the fastest pace since 1990, while household spending fell by its biggest amount in more than a decade, highlighting the UK's vulnerability to the global downturn given its heavy dependence on financial services and property-backed consumer credit.
Sterling inched up to a two-week on Thursday, drawing support from buoyant stock markets and a report on the UK housing market that was not quite as bleak as economists had feared.
On Friday, sterling was on the backfoot against the dollar along with other major currencies.
A slight easing in extreme risk aversion this week has allowed sterling some breathing space from investor deleveraging, leaving the pound on track for its biggest weekly percentage gain since late 2006.
But the pound is still down close to 23 per cent on the year to date.
Range for previous week: $1.4839-$1.5533 (Dh5.4503- Dh5.7052).
Range for this week: $1.4900-$1.5600 (Dh5.4727- Dh5.7298).
- HSBC Global Markets Middle East
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