Dollar rallies on strong US economic data

The euro saw its fortunes dip last week before recovering at the fag end on account of some weak US home sales data.

In general, economic data released from the US continued to indicate a well-entrenched recovery in the world's biggest economy. Trading activity was subdued due to the holiday season in Europe and the US and traders are wary of reading too much into the current price movements. The coming week sees the release of US consumer confidence for November, Germany retail sales for November and UK GfK consumer confidence for December.

Euro

The euro neared its three-month low against the dollar at the beginning of the week, rendered vulnerable as the European Central Bank (ECB) raised its estimate of euro zone bank writedowns and ECB governing council member Ewald Nowotny said European governments should not withdraw special support for their banks too early. Euro came under further pressure on concerns about fiscal health of some countries in the bloc, with Greece's sovereign rating downgraded by three rating agencies this month.

ECB governing council member Athanasios Orphanides said there was no risk of a euro zone country defaulting on its debt but also that Greece should not expect other countries to come to its rescue.

Data from US showed that existing home sales jumped a sharp 7.4 per cent last month to their highest level in nearly three years.

Separately, US gross domestic product (GDP) grew at a 2.2 per cent annual rate in the third quarter instead of the 2.8 per cent pace reported last month, still the fastest pace since the third quarter of 2007. US Treasury Secretary Timothy Geithner expressed confidence that the US economy was on a solid recovery path but said that tight lending practices by banks still posed a risk.

The euro recovered some ground after data from the US showed a surprise drop in new home sales to a seven-month low. Sales of newly built single-family homes unexpectedly dropped 11.3 per cent last month to a 355,000 unit annual rate. The dollar's losses were limited though after a separate report showed a rise in US durable goods orders for November and a drop in initial jobless claims in the latest week.

Range for previous week: $1.4216-$1.4435 (Dh5.2215-Dh5.3020). Range for this week: $1.4200-$1.4500 (Dh5.2157-Dh5.3259)

Sterling

Sterling was largely range-bound against the dollar most of the week. The British pound fell to a two-month low against greenback early last week after data showed a smaller than expected upward revision to UK third quarter GDP. Britain's economic output fell 0.2 per cent in the third quarter of this year, revised from an earlier estimate of a 0.3 per cent decline but below forecasts for a contraction of just 0.1 per cent.

Range for previous week: $1.5920-$1.6164 (Dh5.8474--Dh5.9370). Range for this week: $1.5850-$1.6250 (Dh5.8217-Dh5.9686)

Yen

The yen hovered around six-week lows against the dollar at the start of the week and later fell to a two-month low on unwinding of dollar short positions ahead of year end and optimistic US economic data.

The dollar rallied as much as 8 per cent against the yen from its 14-year low seen late November. Traders were also drawn to the US currency due to its climbing yields, with the spread between 2-year US note and Japan's 2-year bond widening to about 70 basis points from about 48 basis points at the start of the month. The dollar's rally against the Japanese currency was dented by the surprise drop in US new home sales later in the week.

Range for previous week: 90.22 yen- 91.87 yen (Dh0.03998-Dh0.04071). Range for this week: 89.50 yen-92.00 yen (Dh0.03992-Dh0.04104)

— HSBC Global Markets Middle East