Dollar slips from highs amid rate cut uncertainty

Dubai: Last week was marked by the dollar slipping from its recent highs on the back of some hawkish comments by US Federal Reserve officials.

As data and reports made it clear that the Fed was in no position to tighten monetary policy for the time-being, the markets started selling the greenback.

The Federal Reserve's interest rate-setting meeting is due this week, which is keenly awaited by the markets for further clues on US monetary policy.

Euro

The euro commenced last week on a low note, under pressure from the rejection by Irish voters of a treaty promoting closer European Union unity.

However comments by European Commission that inflation is its main concern helped lift the euro against the dollar and yen, and reinforced expectations of a rate hike by the European Central Bank (ECB) as early as July.

Data indicating a jump in euro zone May month annual inflation to a record high of 3.7 per cent further boosted the euro and sealed the case for an ECB rate hike next month.

The dollar weakened broadly against the euro and yen after reports that Federal Reserve officials believe financial markets have gone too far in their expectations for US rate increases.

The euro continued to be supported after ECB Executive Board member Juergen Stark said that euro zone inflation is unacceptably high and it is an appropriate time to review interest rates.

As the week ended, the euro pushed further ahead against the dollar after an unexpected surge in German producer prices in May to a near two-year high was seen as confirmation that the ECB will hike interest rates in July, flagged at the bank's last policy meeting.

Range for previous week: $1.5344-$1.5651 (Dh5.6359- Dh5.7486). Range for this week: $1.5500-$1.5800 (Dh5.6932-Dh5.8033).

Yen

The yen neared a four-month low against the dollar as the week started, pushed down partly due to a rise in the Tokyo share prices that signalled an increase in investors' risk appetite, thereby bolstering the demand for carry trades where low-yielding assets like the yen are sold for higher-yielding assets and currencies.

The yen however rallied against the dollar during the week after data showed that US housing starts fell to a 17-year low, casting more doubts on how much the Federal Reserve might boost interest rates in the coming months.

Range for previous week: 107.10 yen-108.58 yen (Dh0.033828-Dh0.034618). Range for this week: 106.50 yen- 109.50 yen (Dh0.033543-Dh0.034488).

Sterling

Sterling dipped against the dollar at the beginning of the week, as the release of higher-than-expected UK consumer prices data fuelled concerns for the economy already suffering from low growth.

Annualised inflation rose 3.3 per cent in May, the highest since comparable records began in 1997 and above the Bank of England (BoE)'s target of two per cent. The BoE, in its letter sent to the UK Treasury, said that it was uncertain about which path was necessary to get UK inflation back on track, thus dampening speculation for an interest rate rise this year and sending sterling further down against the dollar.

The BoE also said that markets would become too volatile if rates were set to bring prices back down to the two per cent target within 12 months.

As the week ended, the pound hit its highest level in over a week against the dollar after a strong reading of British retail sales.

The rise was however shortlived, as markets surmised that one piece of upbeat data may not be enough to untangle policymakers from the task of trying to balance inflation with slowing growth.

Range for previous week: $1.9457 -$1.9791 (Dh7.1466- Dh7.2692). Range for this week: $1.9500-$1.9800 (Dh7.1624-Dh7.2725).