Dollar pulls back after Fed maintains low rates

The US dollar pulled back from a one-month high towards the end of last week after the Federal Reserve reiterated its commitment to keeping US interest rates low for the foreseeable future.

The central bank said it expected rates to be on hold at ultra-low levels for an extended period.

The dollar had risen sharply over the week amid nervousness that global central banks would start to remove ultra-loose monetary policy accommodation. This stoked haven demand for both the dollar and the yen, as riskier assets such as equities and commodities faltered.

Data coming out of the US was mostly positive with the Institute for Supply Management's factory index rising to 55.7, its highest level since April 2006.

A report from the National Association of Realtors also showed that home resales in the US rose in September for an eighth straight month. The week ended with the release of the non-farm payrolls report and the unemployment figures.

The Labour Department reported that US non-farm payrolls fell by 190,000 in October, the smallest drop since August 2008. However, this was higher than forecasts which had estimated a drop of 175,000.

The unemployment report surged to 10.2 per cent, its highest level since 1983.

Euro

The euro weakened over the week as European stock markets tumbled, and some mixed data from the US reduced risk appetite among investors.

By Friday, the euro was lagging against most of its counterparts following cautious comments by members of the European Central Bank council.

Despite this, economic recovery appears to be on track, as industrial production increased 1.1 per cent in August.

Euro zone business confidence also improved for the seventh straight month and other regional measures of confidence such as the ZEW survey also show economic sentiment to be improving across Europe.

The main highlight of the past week was the ECB decision to leave its target rate at one per cent.

After signalling that the ECB had little intention of raising rates by calling the current rate appropriate, ECB President Trichet said the bank would monitor inflation along with the overall economy as it considers future decisions.

Range for previous week:

$1.4600-$1.4900(Dh5.3625 -Dh5.4727)

Range for this week:

$1.4623-$1.4917 (Dh5.3710 -Dh5.4790)

Sterling

Sterling ended the week strongly against the US dollar as the currency edged up on Friday following the Bank of England's (BoE) rate decision meeting.

The central bank held interest rates at 0.5 per cent, and announced a £25 billion expansion in its asset-buying plan, broadly supporting the currency.

Many in the market believe this top-up of the central bank's asset purchase programme will be the last, although increases in the interest rates do not seem likely in the near future.

Earlier in the week, a Eur-opean commission report released revised down its forecasts for the UK economy in 2009, but said that recovery in 2010 and 2011 would outpace that of the euro zone. It said that UK GDP would fall by 4.6 per cent this year, compared with previous forecasts of 4.3 per cent.

Looking to the week ahead, sterling could come under pressure on Wednesday with the release of the BoE's quarterly inflation report. With UK CPI currently at 1.1 per cent, inflation is at the low boundary of the bank's target range of 1 to 3 per cent.

Range for previous week:

$1.6350- $1.6650 (Dh6.0053 -Dh6.1155)

Range for this week:

$1.6260-$1.6636 (Dh5.9722 -Dh6.1104)

Yen

The yen strengthened over the past week as investors dumped riskier assets over fears that global economic recovery is slowing. Comments made by Finance Minister Fuji indicating that the government will probably cover tax revenue shortfall with debt sales, added to signs that the nation's economy will take time to recover.

There are a few data releases in the coming week with trade balance results being released tomorrow and machine tool orders the highlight on Tuesday. On Friday, the consumer confidence figures and industrial production data will be released.

Range for previous week:89.00 yen-92.00 yen (Dh0.039802-Dh0.040856)

Range for this week:

89.17 yen-91.32 yen (Dh0.04022-Dh0.04119)

HSBC Global Markets Middle East