Market volatility still major deciding factor

During the last week, volatility remained exceptionally high in the market, many stock markets suffered their worst weekly losses ever even after major central banks slashed interest rates on October 8 by 50 basis points (bps) in a co-ordinated move that was considered too little, too late, with shell-shocked investors discarding stocks, higher-yielding currencies and even government bonds to secure cash at any cost.

Leaders of the Group of Seven (G7) industrialised nations set out a plan of action which failed to reassure the market. Leaders of euro zone countries held an emergency meeting in Paris where they agreed on the framework for pan-European measures to prop up the battered financial sector and halt panic.

The euro and British pound rebounded when trading resumed for a fresh week, as the European Central Bank, Bank of England and Swiss National Bank said they were ready to inject as much as needed into the markets in a co-ordinated effort with the Federal Reserve.

Euro

The euro started the week on a weak note against the yen and the dollar, testing the lowest levels in over a year as fears of a financial market meltdown drove the US dollar higher across the board and after hedge funds sold the single currency as data from Germany showed a slide in investor sentiment in October.

However, it rebounded when the EU's summit in Paris concluded with a statement signalling the implementation of other measures meant to stabilise the markets. The euro remained weak on renewed concerns that the US government's $250 billion proposed injection into trouble banks may do little to heal a injured financial sector.

Range for previous week: $1.3218-$1.3594 (Dh4.8550 - Dh4.9930). Range for this week: $1.3344-$1.3769 (Dh4.9025-Dh5.0587).

Yen

The yen rose at the onset of the week against high-yielding currencies as market players unwound long standing carry trades. The spell of initiatives to contain the worst financial crisis since the 1930s increased investor appetite for risk. By mid-week, the yen gained broadly as investors turned risk-averse after US stock futures dropped. The yen is one of the biggest beneficiaries when investors demand safety and unwind carry trades.

Range for previous week: 98.68 to 104.93 yen (Dh0.035004-Dh0.037221) Range for this week: 99.24 to 103.06 yen (Dh0.035620-Dh0.037021).

Sterling

The pound started the week appreciating against US dollar recovering from a five-year low after Britain's Treasury stepped up efforts to revive its ailing financial sector by injecting capital into the country's biggest banks. However it did not last too long as on Tuesday, it extended losses against the US dollar after UK inflation surged to an annualised 5.2 per cent in September.

On top of that, retail sales fell for a fourth straight month offering further evidence the UK economy was sliding into recession and bolstering rate cut expectations. Expectations of further rate cuts are high.

Range for previous week: $1.6785-$1.7580 (Dh6.1651- Dh6.4591). Range for this week: $1.6932-$1.7630 (Dh6.2208-Dh6.4773).

- HSBC Global Markets Middle East