Dubai : Last week saw the US dollar as the top performer among the G10 currencies, as it rallied significantly against the euro and Japanese yen as well as other key counterparts. The gains were not so much due to economic data but rather to trader demand. The reason for the euro's high activity was easier to deduce as the week was filled with news about the Greek fiscal crisis and European Union bailout.

The non-farm payrolls data coming up on Friday promises a great deal of volatility across dollar pairs, and results may give further clues as to the medium-term trajectory for the dollar.

Consensus forecasts call for the second net gain in jobs since December 2007, and optimism is clearly riding high ahead of the report. Preliminary US corporate profits data for fourth quarter 2009 showed that profitability increased an impressive 30 per cent on the year on the heels of impressive productivity gains.

Economists subsequently estimate that companies will resume hiring as profit margins return to normal, but there obviously remains ample room for disappointment. It will be critical to watch whether the US economy added jobs in any significant fashion and, more importantly for forex markets, reactions from the dollar.

For economic event risk, there will be personal income and spending data due tomorrow, Consumer confidence on Tuesday, ADP private employment data on Wednesday, and ISM manufacturing figures on Thursday.

Euro

The euro fell drastically last week; however a sharp rebound at the end of the week may seem confirmation that the market has been comforted by the European Union's pact to rescue Greece. There is still such doubt surrounding the agreement that it would not be difficult for this very early recovery to collapse under its own weight.

The underlying trend by the euro is still perceived as being linked to risk appetite. Should confidence recover, the euro depressed by disaster scenarios will likely see a recovery as forecasts begin to balance out with those projections for major counterpart currencies. On the other hand, should sentiment deteriorate, the inconsistencies in the hailed rescue programme will shine through and perhaps leave the currency in a worse position than it was before.

Range for previous week: $1.3265 - $1.3569 (Dh4.8722-Dh4.9838)

Range for this week: $1.3000 - $1.3600 (Dh4.7749-Dh4.9952)

Sterling

The Bank of England announced that it will introduce a two-tier auction scheme later this year, which will "provide liquidity insurance without distorting banks' incentives for prudent liquidity management, and while minimising the risk being taken onto the bank's own balance sheet."

Meanwhile, Chancellor of the Exchequer Alistair Darling gave his budget report during the week and he maintained his pledge to halve the deficit over the next four years.

However, he expects the short-fall to hold around £163 billion in 2010-11 from £167 billion this year as the government aims to encourage a sustainable recovery. Darling also expects the economy to expand 1 per cent to 1.50 per cent this year, but lowered his 2011 GDP projection to 3 per cent to 3.5 per cent from an initial forecast for a 3.25 per cent to 3.75 per cent rise in the growth rate as he "took that gain and applied it to reducing borrowing further".

Range for previous week: $1.4797-$1.5112(Dh5.4349-Dh5.5506)

Range for this week: $1.4650-$1.5380 (Dh5.3809-Dh5.6490)

Yen

Japanese yen price action may remain indecisive for a second week against the dollar as the currency is pulled in opposing directions by its relationships with investors' appetite for risky investments and the yields on US government debt. Today will see US lawmakers voting on legislation to overhaul America's health care system, a proposal that is projected to cost $940 billion over the next 10 years by the Congressional Budget Office (CBO).

On balance, the passage of the Bill will likely create uncertainty about the degree to which it will compound the already considerable US fiscal shortfall. If markets perceive the headline CBO reading to be rosier than is realistic, long-term borrowing costs may see upward pressure on expectation that government will now need to issue more debt than previously expected. The short-term (20-day) correlation between dollar/yen and the yield on benchmark 10-year US Treasury bonds stands at 0.72, hinting that such as outcome will pull the currency pair higher at least in the near term.

Range for previous week: 89.81 yen-92.95 yen (Dh0.039515-Dh0.040897)

Range for this week: 91.50 yen-93.50 yen (Dh0.039283-Dh0.040142)

— HSBC Golbal Markets Middle East