Investors look towards IMF's growth projections

Dubai: In the week ahead investors will look towards the International Monetary Fund, which will release its updated projections for global economic growth, and expectations are for a lower 2008 forecast in the US.

Europe is also likely to be downgraded and even fastgrowing emerging markets such as India and China may see their growth estimates reduced.

Euro

The euro commenced the week on a soft note, trading at a one-month low against the greenback and a four-month low against the yen. Bank of Italy Governor Mario Draghi said Italy's growth gap compared to other members of the euro zone is widening partly due to the strength of the euro weighing on exports.

However, there was soon a reversal in the greenback's fortunes after the Federal Reserve unexpectedly slashed the benchmark federal funds rate and the discount rate by 75 basis points, in a bid to ease investor fears over a US recession.

The Fed also indicated that it was ready to lower interest rates further to deal with "appreciable" downside risks to growth. The rate cut which preceded the Federal Open Market Committee monetary policy meeting on the January 29 and 30 was not sufficient to prevent US stocks from falling.

Once markets digested the Fed's move Asian equity markets bounced back and European stocks opened marginally higher.

However, investors remained far from convinced that the Fed's action will be enough to calm markets and that it would be able to prevent the US from heading into a recession.

The euro strengthened once more against the greenback after European Central Bank policymaker Axel Weber dampened market expectations of a possible near-term interest rate cut.

Further supporting news came in the form of German corporate sentiment, which unexpectedly rose in January, bolstering policymakers' assertions that the euro zone economy can withstand turmoil in financial markets.

Last week's range: $1.4364-$1.4779 (Dh5.2759- Dh5.4283)

Range for this week: $1.4525-$1.4825 (Dh5.3350- Dh5.4452)

Japanese yen

The yen appreciated against a basket of currencies as global equity market weakness prompted investors to liquidate risky positions.

Japan's Nikkei 225 index fell almost four per cent, Hong Kong's Hang Seng Index fell 5.5 per cent and European stocks shed more than two per cent. However, there was a reversal in the yen's fortunes after the Fed interest rate cut, skewed investors interest back to risky carry trades. The Bank of Japan left its policy rate unchanged at 0.5 per cent.

By mid-week the yen had pulled away from a 2-1/2 year high against the greenback after a US stock rally increased demand for higher yielding currencies.

This trend continued with the dollar gaining ground against the yen with a third straight day of gains in many Asian equities markets emboldening investors to take chances, prompting selling of the low-yielding yen to purchase assets in higher-yielding currencies in carry trades.

Last week's range: 104.95 to 107.89 yen (Dh0.03404 -Dh0.03499)

Range for this week: 105.30 to 108.30 yen (Dh0.03391-Dh0.03488)

Sterling

Sterling commenced the week on a soft note after property website Rightmove announced that the annual house price inflation in England and Wales this month has hit its lowest level since December 2005, causing the British pound to lose ground against the greenback.

This trend continued after the Bank of England said the UK economy faces two shocks: the credit crunch threatening a sharp slowing in growth and a rise in energy and food prices. Investors sold the pound as expectations increased for a February rate cut.

By the end of the week the pound appreciated against the greenback, yen and euro as rallying equities showed investors entering into carry trades. The sterling has the highest interest rate in the Group of Seven industrial nations.

Last week's range £1.9335-£1.9849 (Dh7.1017- Dh7.2905)

Range for this week: £1.9670-£1.9970 (Dh7.2247- Dh7.3350)