Greenback under pressure as Fed remains cautious

The dollar started the week on the backfoot, hitting a 15-month low on a trade-weighted basis on Monday after stronger-than-expected Japanese growth data boosted risk appetite leading to investors demanding high risk assets, curtailing safe haven demand for the dollar.

Analysts said that with the year-end approaching, investors were encouraged to book profits after the recent strong run.

The dollar also faced increased downward pressure following comments from Federal Reserve chairman Ben Bernanke who said that the central bank was monitoring currency markets closely and expects interest rates to remain exceptionally low for an extended period of time.

Risk appetite was also unsettled by news on Wednesday that Brazil would further tighten restrictions to stop short-term speculative inflows that had been boosting its currency.

The dollar ended the week on a strong note however, as risk tolerance fell and investors cut exposure to assets and currencies perceived as higher risk leading to increased safe haven flows for the dollar.

In the coming week, the dollar faces heavy event risk with a number of key economic reports due for release and therefore could experience choppy trade.

US markets will be closed on Thursday for the Thanksgiving holiday and will close early on Friday, and as a result, volumes will be lower than usual.

Euro

The euro was generally slightly weaker of the past week as momentum for gains faded and risk appetite was weaker.

The euro zone experienced a quiet week in terms of event risk, with no major econ-omic data released, however structural fears were a focus with internal bond yield speeds widening.

The euro experienced brief downward pressure following concerns regarding factual sovereign ratings as Greece attempted to plug revenue holes in its 2010 budget through a combination of tax increases and spending cuts.

The euro zone posted a combined trade surplus of 3.7 billion euros ($5.54 billion - Dh20.3 billion), compared with a deficit of 2.3 billion euros in August. Seasonally adjusted data showed a 5.5 per cent increase in exports in September, which allowed the adjusted trade surplus to rise to 6.8 billion euros in September.

Range for previous week: $1.4795 - $1.5120 (Dh5.4342 - Dh5.5535). Range for this week: $1.4717 - $1.5198 (Dh5.4058 - Dh5.5825).

Sterling

Sterling was unable to sustain its strongest levels over the week with a retreat to near 0.90 against the euro and 1.65 against the dollar.

The release of the Bank of England's November meeting minutes led the markets to price in fewer rate increases over the next 12 months. Looking to the week ahead for sterling, Tuesday's data is expected to show a fall in total business investment for the fifth straight period in the third quarter at a rate of 3.9 per cent.

While BBA's measure of loans for approved for house purchases is anticipated to rise for the seventh straight month in October to 44,000 from 42.088, signalling a rising demand and potentially increasing house prices.

Range for previous week: $1.6692 - $1.6852 (Dh6.1309 - Dh6.1897). Range for this week: $1.6458 - $1.6877 (Dh6.0433 - Dh6.1992).

Yen

The yen showed strength last week as capital retreated from stocks, commodities and carry trades funded in the yen.

The currency diverged from the dollar after the preliminary reading of Japanese GDP was revised higher than anticipated, reflecting an annualised growth of 4.8 per cent in the third quarter from 2.7 per cent.

The Bank of Japan kept interest rates unchanged on Friday at 0.1 per cent in a unanimous decision.

The central bank also upgraded its economic outlook saying the drop in capital investment is slowing and consumption is starting to pick up.

Range for previous week: 90.47 yen - 92.40 yen (Dh0.04059 - Dh0.0397). Range for this week: 87.10 yen - 90.40 yen (Dh0.04021 - Dh0.0422)

HSBC Global Markets