Pound slides to record low against euro

Dubai: Last week was marked by interest rate decisions by the Bank of England (BoE) and the European Central Bank (ECB), which were on expected lines, and a G7 statement that expressed concern on the recent sharp fluctuations in the currency market and the fall of the dollar.

This week markets await data from the US, euro zone and the UK to gauge the extent of the slowdown and inflationary pressures faced by the various economies.

Euro

The euro commenced the week on a strong note against the dollar, aided by prospects for steady euro zone interest rates while the US interest rates are expected to fall further in the coming months.

Concerns expressed by euro zone officials about strong inflation pressures dampened expectations for the ECB to lower rates this year, lending support to the euro. The euro also touched a three-month high against the Japanese yen as Japanese investors bought higher-yielding foreign assets at the start of a new financial year.

As the week progressed, the dollar was further pressured by the minutes of the last Federal Reserve meeting which showed that policy-makers felt that a prolonged and severe economic downturn cannot be ruled out, underscoring market expectations for further Fed rate cuts.

The ECB expectedly kept the key rate unchanged at four per cent and suggested that its main task is containing inflation expectations by keeping rates firmly on hold.

The euro has gained nearly nine per cent since the start of this year.

As the week ended, the finance ministers and central bankers of G7 nations vowed to act swiftly on wide-ranging reforms aimed at moving beyond a credit crisis that threatens world growth.

They also expressed concern about sharp fluctuations in currency markets since the G7 last met in Tokyo in February, suggesting unease with how far markets have pushed down the dollar.

Range for previous week: $1.5625-$1.5912 (Dh5.7390- Dh5.8445).

Range for this week: $1.5650-$1.5950 (Dh5.7483- Dh 5.8584).

Yen

The yen commenced the week falling against the dollar as Japanese investors were said to have sold the yen against higher-yielding currencies in the new business year and on dollar buying by Japanese importers.

The dollar was lifted close to a one-month high against the yen on reports that Citigroup was close to a sale of about $12 billion worth of leveraged loans and bonds to a group of private equity firms. The rise of the dollar, however ran out of steam as Jap-anese exporters and life insurers are believed to have stepped in to sell the dollar.

The Bank of Japan (BoJ) left its interest rate target unchanged at 0.5 per cent as expected in a unanimous vote even as the Japanese parliament moved to appoint acting BoJ governor Masaaki Shirakawa to the post permanently, ending a three-week vacuum at the top of the central bank.

The yen got a boost as the week closed after General Electric announced a six per cent drop in its quarterly earnings, stoking fears about the health of the US economy and causing investors to dump riskier carry trades.

Data showing that US consumer confidence plunged to a 26-year low in April further aided the dollar's fall against the yen.

Range for previous week: 100.62 yen-102.85 yen (Dh0.035712-Dh0.036504).

Range for this week: 99.50 yen-103 yen (Dh0.035660-Dh 0.036915).

Sterling

Sterling fell broadly during the week, hitting successive record lows against the euro as UK economic data fanned talks of aggressive interest rate cuts by the BoE. Weaker than expected house price data helped push the sterling down to an 11-year low on tradeweighted basis.

The BoE cut rates by 25 basis points to five per cent as expected.

The pound slid to a record low against the euro for the fourth consecutive day on Friday as investors remained downbeat about prospects for the UK economy despite the interest rate cut by the BoE.

The pound also fell to an 11-year low of 91.7 on a trade-weighted basis even as markets expect the BoE to cut interest rates again in June to fend off a sustained economic slowdown.

Range for previous week: $1.9649-$1.9940 (Dh7.2171- Dh7.3240).

Range for this week: $1.9550-$1.9900 (Dh7.1807- Dh7.3093).

- HSBC Global Markets Middle East