Dollar's fortunes take a turn for the better

Dubai: The week was marked by a reversal in the fortunes of the hitherto ailing dollar as it touched a five-month high against the euro on concerns that the woes of the US economy are spilling over globally. This week markets await the US retail sales and CPI data along with UK PPI and German CPI figures.

Euro

The euro tumbled to a five-month low against the dollar after the European Central Bank's chief highlighted downside growth risks and oil prices fell, while European stocks halted a global sell-off.

After leaving interest rates on hold at 4.25 per cent on Thursday, ECB President Trichet said that the ECB expected euro zone growth to weaken substantially this year even though he saw inflation staying above the central bank's target.

Coupled with outright dollar supportive developments such as a surprising rebound in US home sales and a continued decline in oil prices deeper into technical "bear market" territory, the greenback soared.

Despite the continued fragility of the US financial and housing sectors, the near-term picture for the euro and other currencies has deteriorated so quickly that further declines against the dollar may be on the cards. It fell below major technical support to below its 200 day moving average at $1.5225. It hasn't closed below this technical level since March 2006.

The dollar rose 1 per cent against a basket of currencies, while it strengthened versus the euro, nearly 10 cents above record lows set last month. According to interest rate futures, investors are no longer expecting a euro zone interest rate hike this year, and they predict no lowering in the cost of borrowing, either. US light crude stood at around $115 a barrel, down more than 1 per cent and nearly $30 below its record peak of July, as supply concerns eased after a report that a fire in an oil pipeline in Turkey may be put out soon.

Range for previous week: $1.4996-$1.5631 (Dh5.5080- Dh5.7413)

Range for this week: $1.4900-$1.5200 (Dh5.4728- Dh5.5830)

Yen

The dollar edged up to cross 110 yen, a seven-month high. The yen's fall was aided by a Japanese government warning that the country might be in recession. Japan's corporate bankruptcies rose to their highest in five years in July while sentiment among service sector workers fell to a nearly 7-year low, adding to the growing view that the world's second largest economy is now in recession.

Range for previous week: 107.43 yen-110.37 yen (Dh0.033279-Dh0.034190)

Range for this week: 108.03 yen- 111.93 yen (Dh0.032815-Dh0.033999)

Sterling

Sterling hit a 21-month low against a buoyant dollar. Sterling was en route to its worst weekly performance in percentage terms in roughly three years, as investors dumped the pound against the dollar as the UK economy struggles.

Broad weakness in the UK economy prompted the Bank of England to hold interest rates at 5 per cent, a decision widely expected given recent data showing falling house prices, rising unemployment and limited growth. The UK currency has crashed from a three-and-a-half month high of $2.0153 hit only three weeks ago. The BoE has held off from raising rates despite high inflation. Investors await monthly inflation data due this week.

Range for previous week: $1.9141-$1.9760 (Dh7.0305- Dh7.2579)

Range for this week: $1.9000-$1.9300 (Dh6.9787- Dh7.0889).

- HSBC Global Markets Middle East