Dollar gains on safe-haven bids and euro zone turmoil

Dubai: Despite views that the world will not heave out of the disintegrating financial crisis sooner than 2010, recent forecasts say the market calamity may bottom out by the end of 2009.

Mixed events last week spurred such a shift in beliefs as equity markets coiled between highs and lows, amplified activity in winding and unwinding of carry trade positions and upbeat US economic indicators that had positively weighed on the greenback. As a result, the dollar may have a glimpse of a chance to remain the reserve currency of the world

Weak US stocks also drew safe-haven bids toward the dollar against the single euro-zone currency where the dollar rose 2.2 per cent against the yen, gained one per cent against the pound and climbed 1.8 per cent against the Swiss franc over the week.

The dollar rose on track for its best day in more than two months against the euro, by a growing view that the European Central Bank may be the next to purchase its own bonds to stimulate growth and cut interest rates in its next meeting by 50 basis points to one per cent.

The euro witnessed its largest weekly drop against the dollar in two months on data that showed another sharp contraction in manufacturing, dismal German corporate sentiment and diminishing service sector activity.

It is highly expected that the European Central bank may be the next to adopt quantitative easing in its next meeting on April 2 and cut interest rates by 50 basis points to one per cent.

The euro, which has climbed steadily against the dollar since the beginning of the month, was on track for its biggest one-day fall in over a month. It slid by over two cents on comments from the German Finance Minister Peer Steinbrueck to an intraday low of $1.3296, its weakest level since March 18.

Steinbrueck warned on Friday that fiscal irresponsibility in Europe could put the euro at risk and surging debt levels could threaten the stability of the euro currency.

Germany has said its own deficit will rise to about four per cent of GDP next yearm but is vowing to push it back down to three per cent in 2011.

Under the EU's Stability and Growth Pact, member states must limit their deficits to three per cent of GDP.

Range last week: $1.3290 to $1.3737(Dh4.8814 to Dh5.0456).

Range this week: $1.2830 to $1.3150 (Dh4.7125 to Dh4.8300).

Sterling fell 0.7 per cent against the dollar pressured by data showing UK retail sales were much weaker than expected as more Britons joined the jobless rolls than any time since 1971. Claims for jobless benefits rose 138,400 in February to 1.39 million more than the 84,800 increase forecast. A broader unemployment measure climbed above two million in January for the first time since 1997.

Britain had a £9 billion ($12.8 billion) budget deficit in February as Britain's economy shrank even more abruptly than expected in the last three months of 2008. The pound slipped after the figures which reinforced fears that Britain would be one of the economies hardest hit by the global downturn as the International Monetary Fund assumes Britain's economy will contract by 3.8 per cent in 2009.

Germany's economy shrank by 2.1 per cent in the fourth quarter, its worst reading since reunification, Japan contracted by 3.2 per cent, its worst performance since the oil crisis of 1974 and Ireland shrank by 7.1 per cent, its sharpest contraction ever.

Bank of England policy makers voted unanimously to start printing as much as £75 billion in money to fight the recession as they made their final cut in the benchmark interest rate.

Range for previous week: $1.4460 - $1.4616 (Dh5.3112 Dh5.3685).

Range for this week: $1.4120 - $1.4385 (Dh5.1863 Dh5.2836).

The yen rose against other major currencies on Friday, recovering from a five-month low versus the New Zealand dollar as investors concluded that the yen's broad slide this week was beginning to hold as major Japanese investors repatriated funds from overseas ahead of the end of the business year on March 31.

While the Bank of Japan said it would offer over $10 billion in loans to banks, the yen experienced heavy selling pressure during the week.

This came as risk appetite was revived amid regional market revival.

The yen managed to end the week higher against the majors despite views that Japan could be the slowest among major economies to recover from recession after a slew of dire economic data and a sharp fall in imports and exports as global demand for Japanese goods disappears.

Japanese consumer price inflation has stalled and suggested the economy was edging toward deflation, while retail sales in February fell more than expected.

Range for previous week: 97.72 yen 98.78 yen (Dh0.0376 Dh0.0372).

Range for this week: 100.10 yen 101.2 yen (Dh0.03670 Dh0.0363).

- HSBC Global Markets Middle East