Dollar weakness likely to stay

Dubai: The US currency traded around 15-month lows against a basket of major competitors last week. The euro was also driven up above $1.50.

There is also evidence that non-US investors have been hedging heavily to protect themselves from dollar losses. One impact of the weakening dollar that investors will be watching this week is gold, because it becomes cheaper for non-US investors and holds value for those with dollars.

The dollar's long-term decline as the world's dominant currency will be on display this week when Barack Obama visits China today, pledging to address what he sees as a "deeply imbalanced" economic and financial relationship.

Other than news from Beijing, any signals in the coming week are likely to come from consumer-related US data. Elsewhere, potential market movers include euro zone consumer prices tomorrow and British inflation on Tuesday.

Euro

The euro is up more than 4 per cent in the third quarter and has climbed 6.2 per cent so far in 2009. The euro zone economy jumped out of recession in the third quarter, data showed on Friday, but with slightly less spring than expected.

The growth ends the deepest economic downturn in Europe since the Second World War, brought on by a global financial crisis, but economists say recovery is likely to remain fragile.

Investors are likely to resume selling the dollar this week, reinforcing a trend that has been in place since October on the view that US interest rates will remain low even as global economic health improves.

Range for previous week: $1.4819-$1.4943 (Dh5.4430 -Dh5.4885). Range for this week: $1.4795-$1.5120 (Dh5.4342-Dh5.5535)

Sterling

Sterling recovered some of its one-week losses against the dollar and two-week losses against the euro on Friday as traders closed short positions in the UK currency ahead of the weekend.

The pound pulled back from a peak after Bank of England Governor Mervyn King suggested a weak currency would help the UK economy recover. Despite its gains on Friday, analysts said sentiment towards the currency remained negative.

Markets expect the pound to stay weak overall on the view that UK interest rates will stay at ultra-low levels for longer than those in other countries, but market participants say that its near-term losses may be limited as investors are keen to pick up sterling as it falls towards $1.6500.

Range for previous week: $1.6516-$1.6704 (Dh6.0663- Dh6.1353). Range for this week: $1.6692-$1.6852 (Dh6.1309-Dh6.1897)

Yen

The dollar dropped for a third week against the yen, falling 0.2 per cent to 89.66, from 89.88. Traders said yen gains were partly driven by Finance Minister Hirohisa Fujii's saying he was less worried about Japanese government bonds and budget requests for the next fiscal year.

Japanese government bonds posted their first weekly advance in more than a month, pushing the yield to the 10-year security to 1.34 per cent, the lowest level since October 19. Japan's public debt, already the largest in the industrialised world, is approaching twice the size of gross domestic product, according to the Organisation for Economic Co-operation and Development.

Range for previous week: 89.44 yen-90.61 yen (Dh0.0410-Dh0.04054). Range for this week: 90.47 yen-92.40 yen (Dh0.04059-Dh0.0397)

HSBC Global Markets Middle East