Business | Markets
Dollar trims losses as Fed acts to restore confidence
Greenback made its biggest gain against the euro since mid-December last week as oil briefly fell below $100 for the first time in two weeks
- Special to Gulf News
- Published: 00:16 March 23, 2008
Dubai: The dollar plunged across the board last Monday as the spreading US financial crisis led to JPMorgan Chase acquiring stricken investment bank Bear Stearns, stirring fears that more financial firms may become casualties.
Investors are now hoping US authorities will use public funds to help stabilise stumbling credit markets, believing that just slashing interest rates and injecting extra funds in the banking system will not do.
Euro
The euro hit an all-time high above $1.59 against the dollar on Monday, and Mersch voiced concern against volatile foreign exchange rate swings. European Central Bank (ECB) policymakers have kept inflation on top of the agenda, with ECB Executive Board member Lorenzo Bini Smaghi also warning about currencies overshooting their true value.
Euro zone inflation is currently running at a record 3.3 per cent, but most economists believe the ECB has underestimated the impact the housing-led slowdown in the US will have on the euro zone, and will be forced to cut rates by June.
The ECB sets interest rates with a view to keeping inflation just below two per cent over the medium term, and has kept its main interest rate at four per cent since June. Euro zone inflation hit a record high of 3.3 per cent in February.
The dollar weakened against the euro on Wed-nesday, erasing gains made after a smaller-than-expected US interest rate cut the previous day, as dealers maintained their bearish view on the low-yielding currency.
The dollar made its biggest gain against the euro since mid-December on Thursday as oil briefly fell below $100 a barrel for the first time in two weeks and gold dropped to a one-month low.
Range for previous week: $1.5500-$1.5800 (Dh5.6931- Dh5.8033).
Range for this week: $1.5400-$1.5900 (Dh5.6550- Dh5.8400).
Yen
The yen commenced the week as low as 95.77 yen, the lowest in 13 years, after the Fed took the emergency step of cutting its discount rate last Sunday and opened up discount window lending to major investment banks, a tool not used since the Great Depression.
The Bank of Japan (BoJ) is set to be placed in the hands of a temporary governor when current BoJ Governor Toshihiko Fukui retires later on Wednesday, with the latest candidate to replace him rejected by parliament.
The ongoing political drama over who will be the next central bank chief is a negative factor for the yen, but so far, market players have not used it to sell the currency. Acting Bank of Japan Governor Masaaki Shirakawa, who has been appointed until parliament approves a new BOJ Chief, said on Friday that his top priority at the moment is to deal with turmoil in international financial markets.
By the end of the week the dollar rose around 0.3 per cent against the yen to 99.65 yen, hovering above a 12-1/2 year low of 95.77 yen hit on Monday.
Range this previous week: 97.60 yen-100.60 yen (Dh0.036510-Dh0.037633).
Range for this week: 95.70 yen-100.44 yen (Dh0.03656-Dh0.03837).
Sterling
The pound fell to a session low versus the euro and the dollar last Wednesday, while UK rate futures ticked higher after Bank of England (BoE) minutes showed that two of the nine policymakers favoured a rate cut this month.
Weaker-than-expected average earnings data released at the same time as the minutes also fuelled the market moves. Easing inflationary pressure were seen to give the BoE more room to cut rates.
After the minutes UK interest rate futures rose as traders moved to price in lower interest rates from the central bank.
By the end of the week sterling rose by more than one per cent versus a broadly weaker euro after stronger than expected UK sales data cast doubt over how quickly and deeply the BoE will cut interest rates.
Range for previous week: $2.0050-$2.0350 (Dh7.3643- Dh7.4746)
Range for this week: $1.9730-$2.0370 (Dh7.2450- Dh7.4800).
- HSBC Global Markets Middle East
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