Business | Markets
Rate rise expectations give boost to dollar
The dollar started the week with a boost on speculation that the Fed may start to increase interest rates by the end of 2008.
- Special to Gulf News
- Published: 23:24 July 26, 2008
Dubai: The dollar started the week with a boost on speculation that the Fed may start to increase interest rates by the end of 2008.
The European Central Bank hiked interest rates earlier this month to 4 per cent in June in order to reduce inflation, which was 4 per cent in June, twice the ECB target.
Euro
Euro rose on Monday against dollar as investors believed that the worst of the problems in the US financial system were not yet over. Also, investors shifted their investments towards high yielding currencies such as euro rather than keeping them in US dollars which earn 2 per cent only. However on Tuesday euro lost most of its gains after comments from US Treasury Secretary Henry Paulson highlighting efforts being made by US officials to resolve the financial crisis.
Range for previous week: $1.5700-$1.6000 (Dh5.7666--Dh5.8768)
Range for this week: $1.5630-$1.5940 (Dh5.7424- Dh5.8563)
Yen
The Japanese yen started the week weakening against the dollar on growing speculation that the Federal Reserve may hike interest rates. Yen was also under pressure due to a slide in oil prices, which helped to boost risk appetite, prompting investors to sell the low yielding yen to buy higher yielding assets. On Thursday the yen continued to weaken on fall in oil prices to its lowest level since June from its record high $147.27 to $123.62 per barrel.
Range for previous week: 105 yen-108 yen (Dh0.034009-Dh0.034981)
Range for this week: 106 yen-108 yen (Dh0.03400- Dh0.0346)
Sterling
The pound started the week sliding against dollar as more bad news on the financial sector and housing market deepened Britain's economic gloom, and after David Blanchflower, BoE policy maker indicating that interest rates should fall to "well below" their current rate 5 per cent as UK economy is heading into recession.
Bank of England minutes showed on Wednesday a bias towards an interest rate rise from current level 5 per cent by a policymaker, which pushed the pound to hit a three week high against the euro, pound was also supported by UK consumer prices which rose to their highest level in 11 years. However sterling gains were limited as market had already anticipated that some board members would call for higher rates.
The pound weakened by the end of the week after retail sales figures came much lower than expected to record 3.9 per cent in June, the sharpest monthly fall since 1986, which boosted rate cut expectations.
Range for previous week: $1.97-$2 (Dh7.2358- Dh7.3460)
Range for this week: $1.9814-$2.0075 (Dh7.2796- Dh7.3755).
- HSBC Global Markets Middle East
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