High oil deals a major blow to dollar

Dubai: The euro touched a series of record highs against a struggling dollar this year as investors took fright over a US housing crisis that has led to stagnating growth and forced the Federal Reserve to slash interest rates since September.

In contrast, the European Central Bank has left interest rates unchanged, thereby widening interest rate differentials between the greenback and the euro. Speculation is rife that concerns over inflation may even force it to tighten monetary policy.

The slide in the dollar was triggered as stocks tumbled on the combination of record oil prices and the Fed trimming its 2008 growth forecast. In addition to the spike in oil prices, further weakness in the US stock markets this week could erode risk appetite and prompt investors to dump the dollar against currencies like the yen and Swiss franc.

Euro

The dollar rose broadly at the start of last week, rebounding from a two-and-a-half week low against the euro as equities rallied and an economic forecasting gauge showed the US economy, while weak, has managed to ward off recession.

The dollar rebounded after the private Conference Board's leading indicator index showed a rise of 0.1 per cent in April to match the increase in March, which followed five straight months of declines.

Midweek however, the US unit lost its foothold against the euro dented by comments from a German government official who stoked expectations of higher euro zone interest rates.

The dollar's fall continued after the Fed cut its 2008 growth forecast and warned of higher unemployment, further cementing the view that an interest rate hike was not on the cards this year.

Data due this week includes US new home sales and durable goods orders for April as well as the preliminary first-quarter gross domestic product growth report, which is expected to show a modest upward revision.

Range for previous week: $1.5361-$1.5816 (Dh5.6420 to Dh5.8092)

Range for this week: $1.5550-$1.5850 (Dh5.7115 to Dh5.8217)

Yen

The Japanese yen advanced against the US unit on worries about inflation in the US economy. The dollar was dented against the yen as a fall in Asian stocks instigated investors to rid risky carry trades, in which low yielding yen is used to fin-ance purchases of assets giving higher returns elsewhere.

The Nikkei share average slid 1.5 per cent, with profit-taking gathering speed after Wall Street tumbled to a two-week low as oil peaked above $135 a barrel. The dollar slipped to 102.73 levels after the Fed slashed its 2008 growth forecast.

Meanwhile, Bank of Japan (BoJ) policy board members agreed that downside risks to the global economy are heightening in light of unstable international financial markets and a flagging US economy, minutes of their April 8-9 meeting revealed on Friday. The BoJ's nine-member board, which currently has only seven members voted unanimously to keep its overnight call rate target at 0.5 per cent at the meeting.

Range for previous week: 102.55 yen to 105.45 yen (Dh0.034831 - Dh0.035816)

Range for this week: 102.00yen to 105.00 yen (Dh0.03498-Dh0.036009)

Sterling

Sterling strengthened versus the greenback taking its cue from a broad based euro rally fuelled by growing concerns that the next move in euro zone interest rates may be up rather than down. Its initial gains were however short-lived as the British pound dropped on concerns over the UK economy.

The pound fell against the dollar despite a brief respite after the minutes of the Bank of England's monetary policy committee meeting in May showed an 8-1 vote in favour of rates staying on hold with only arch-dove David Blanchflower voting for a cut.

However, announcement of UK retail sales figures bolstered the pound against the dollar. The data, while weak, was more resilient than expected. Figures showed that British sales fell 0.2 per cent in April from the previous month against forecasts for a 0.5 per cent fall.

Range for previous week: $1.9364-$1.9854 (Dh7.1123 to Dh7.2923)

Range for this week: $1.955-$1.9850 (Dh7.1807 to Dh7.2909)