Markets await Fed interest rate decision

Dubai: Last week was marked by signals of a reversal in the fortunes of the battered US dollar.

Markets await the US Federal Open Market Committee (FOMC) to announce its interest rate decision this week, as well as similar decisions by the Bank of England (BoE) and the European Central Bank (ECB).

Euro

The euro commenced last week on a bullish note, brushing off data showing that German GfK consumer sentiment hit a five-year low of 2.1 for August from a downwardly revised 3.6 in July.

The euro however struggled to rise after data the previous week that showed the euro zone economy was also losing momentum. Euro zone sentiment data was weaker than expected at 89.5, further worsening the sentiment for the euro. The dollar was further supported by a jobs report that showed an addition of 9,000 jobs by the private sector in July, against an expected 60,000 cuts. The dollar's rise was, however, was tempered by the weekly jobless claims next day, which showed a jump.

Range for previous week: $1.5511-$1.5768 (Dh5.6972- Dh5.7916)

Range for this week: $1.5400-$1.5700 (Dh5.6564- Dh5.7666)

Yen

The Japanese yen was at a one-month low against the dollar as the week started, with the dollar riding on the momentum gained from better than expected US data released the previous week. The yen's fall was, however, limited since Japanese exporters were seen to have orders lined up to sell the dollar above 108.00 yen.

Data showed that Jap-anese industrial production fell 2 per cent in June from a month earlier, adding to market expectations that economy may be heading for a recession, keeping incentives low for buying the yen. As the week closed, the yen gained, benefiting from increased stress in financial markets on news that General Motors posted a second-quarter loss of $15.5 billion, much worse than expected.

In other currency news, the Australian dollar fell to a 2-1/2 month low against the US currency hurt by the slide in commodity prices and after the nation's top banks disclosed increased losses from exposure to distressed credit markets. The market expects the Reserve Bank of Australia to hint at lower interest rates at its policy meeting in the coming week.

Range for previous week: 107.27 yen to 108.38 yen (Dh0.033890-Dh0.034241)

Range for this week: 105.50 yen to 108.50 yen (Dh0.033853-Dh0.034815)

Sterling

The pound hit a two-week low against the dollar early in the week after British retail sales data heightened fears about the health of the economy and soft mortgage data highlighted stress in the property market.

Sterling has remained relatively robust in recent weeks as UK interest rates - currently the highest at 5 per cent in the G7 nations - are seen on hold for the rest of the year because of inflationary pressures.

Sterling was largely unmoved by news that the first-half profits of UK's No 5 bank Lloyds TSB dipped 70 per cent on its exposure to risky assets.

The pound however hit a three-week low against the dollar at the week's close as the index of UK manufacturing activity contracted for the third month in July and at the sharpest rate in a decade. This was preceded by housing and consumer confidence figures that had already pointed to an economy losing momentum.

Rising price pressures have made BoE policymakers reluctant to implement growth-stimulating interest rate cuts despite clear signs of sharply slowing growth. The markets expect the BoE to keep borrowing costs steady at 5 per cent at its meeting this week.

Range for previous week: $1.9725-$1.9968 (Dh7.2450- Dh7.3343)

Range for this week: $1.9650-$1.9950 (Dh7.2175- Dh7.3276).

- HSBC Global Markets Middle East