Markets to focus on Bernanke's comments this week

Dubai: The dollar started last week with a boost against a basket of major currencies after European Central Bank (ECB) president Jean Claude Trichet's commented about the euro zone economy, which has been facing tough times and was slowing more than policy-makers had expected.

Trichet also mentioned in his comments that the rest of the world is not protected from the economic pain being endured in the US.

The dollar rose more than 5 per cent this month, supported by a sell-off in oil prices, which was not the main factor, as markets started to focus on the health of the global economy and fears that the economy will slow down, which turned to be the main factor accelerating the dollar rally.

Euro

The euro was under pressure to touch the $1.49 level as investors and traders were worried about the possibility that the slowdown in the US would show up elsewhere in the world.

However, strong anti-inflation comments from ECB policymakers along with the rise in oil prices helped the euro to hold at $1.5050.

On Monday, the euro recouped some of its losses after ECB council member Klaus Liebscher warned that policymakers remained focused on taming high inflation.

The euro continued its downward trend during the week after comments by the ECB on the growth outlook raised expectations that the central bank may start to cut interest rates.

However, the dollar's gains were capped to some extent as oil prices rose on Monday on worries that the growing conflict between Russia and Georgia will affect oil exports.

By the end of the week the euro fell almost 0.8 per cent to $1.4690 amid signs that the US economic slowdown may have hit bottom.

This week, markets will focus on Federal Reserve Bank chief Ben Bernanke's comments to gather clues about US economic performance and rates expectations that could provide a further boost for the dollar versus the euro.

Range for previous week: $1.4900-$1.5200 (Dh5.4728- Dh5.5830).

Yen

The yen began the week weakening against the dollar as investors started to move to riskier currencies for higher returns and sell low yielding currencies.

The dollar continued its rally on Wednesday. Data from Japan showed the economy shrank 0.6 per cent in the second quarter as expected. However, the annualised figure fell slightly faster than expected by 2.4 per cent, which supported the view that the economy had slipped into recession.

On Thursday, the US dollar reached a 7-1/2 month high of 110.66 yen after crude oil prices dipped more than $35 per barrel from their record peak last month and increasing expectations that the US economy started to show signs of reviving.

Range for previous week: 108.03 yen-111.93 yen (Dh0.032815-Dh0.033999)

Sterling

The pound started the week hitting a 21-month low against US dollar despite weaker than expected factory gate inflation as investors expect that Bank of England will start to cut interest rates in order to boost growth. On Wednesday, sterling fell to its lowest level in almost 2 years and its steepest monthly drop in over 11 years against the dollar after the Bank of England commented in its quarterly report that inflation can fall below the central bank's 2 per cent target in two years if interest rates were held at 5 per cent.

The pound fell against dollar by the end of the week to its lowest level since July 2006, on a growing certainty that the UK economy is stagnating.

Range for previous week: $1.9000-$1.9300 (Dh7.08896- Dh6.9787)

- HSBC Global Markets Middle East