Anxious investors expect Fed rate cut

The Federal Reserve takes centrestage this week, with markets widely expecting a cut in borrowing costs following a string of weak economic indicators and US bank earnings reports that have shown heavy losses and write-downs resulting from the subprime collapse and credit crunch.

The dollar's slide to a new low against a basket of currencies and a record low against the euro has been a key driver of crude oil surging to $92 a barrel and gold peaking at a 28-year high of $778.25 an ounce.

Euro

The greenback suffered major falls throughout last week, having commenced the week on a bleak note as US stocks tumbled. The apparent indifference of the Group of Seven finance officials to the recent dollar weakness was seen as a cue to dump the currency.

The dollar stayed weak after Merrill Lynch reported its biggest ever-quarterly loss. A dip in US existing home sales to a record low in September showed that the already fragile housing market may be taking a turn for the worse and cemented the view that the Federal Reserve will likely cut interest rates this week.

The dollar fell to fresh lifetime lows against the euro and basket of currencies on Friday, as markets believed that an anticipated Fed interest rate cut could not be the last.

Meanwhile, data showing euro zone money supply annual growth for September came in at 11.3 per cent, slightly slower than August numbers, but still well over the European Central Bank's 4.5 per cent target, added to the euro's strength.

In terms of US economic data this week, the focus will be on the October non-farm payrolls report, which is expected to show a net 90,000 rise in jobs created and the unemployment rate holding steady at 4.7 per cent.

Last week's range: $1.4124 to $1.4397 (Dh5.1877 to Dh5.2880). Range for this week: $1.4250 to $1.4550 (Dh5.2340 to Dh5.3442).

Yen

The yen gave in to selling pressure at the onset of the week, as gains in US share prices rekindled risk appetite that fuelled pick-up in carry trades.

Midweek, however, the yen rose, extending gains versus the euro and the dollar.

News that sales of previously owned US homes dived to a record low annual pace of 5.04 million units in September, combined with Merrill Lynch's write-downs, was seen cementing the case for a Fed interest rate cut this week, adding to dollar's woes.

Last week's range: 113.75 to 115.03 yen (Dh0.031930 to Dh0.032290). Range for this week: 113 yen to 116 yen Dh0.031663 to Dh 0.032504).

Sterling

Sterling hit a three-month high against the dollar and strengthened versus the yen as investors, buoyed by rising European and Asian stocks, moved back into carry trade positions.

British factory orders unexpectedly fell in October as exports weakened at their sharpest rate in a year, a survey from the Confederation of British Industry showed. Sterling dipped a little following the data but recovered.

Last week's range $2.0301 to $2.0574 (Dh7.4565 to Dh7.5568) Range for this week: $2.0400 to $2.0700 (Dh7.4929 to Dh7.6031)