UK manufacturing and labour woes signal torrid times for sterling

Dubai: The dollar came under pressure last week as investors buoyed by surging US stock markets reduced safe haven flows and added riskier currencies to their portfolios.

On Thursday, the US Labour Department said jobless claims increased by 9,000, bringing the figure to 650,000, the highest reading since October 1982, when claims hit 656,250.

Following the cut in interest rates by the European Central Bank (ECB), the euro faced a relatively quiet week in terms of event risk.

The euro endured downward pressure over the week as concerns were raised over the health of the euro zone economy following the release of weak economic data.

German factory output declined for the fifth consecutive month in January with industrial production falling 7.5 per cent from the previous month.

Floundering economic figures from the euro zone give rise to speculation on a further rate cut in April as policymakers will be keen to maintain their two per cent inflation target.

Futures markets are pricing in a 75-basis point cut in ECB's interest rates by the end of April.

Markets will look towards the G-20 meeting as risk aversion could weigh down on the euro.

Range for previous week: $1.2600 - $1.2991 (Dh4.6279 Dh4.7729).

Range this week: $1.2551 - $1.2956 (Dh4.6099 Dh4.759).

Sterling endured a torrid week, falling to multi-week lows of $1.3658, before pegging back on Friday's trading session to end the week at $1.4006 at New York's close.

Sterling's descent comes on the back of the Bank of England (BoE) reducing interest rates to 0.5 per cent, the lowest levels seen in the bank's 315 year history.

In addition, the BoE also announced a policy of quantitative easting as policymakers no longer see monetary policy as a poignant enough tool to buttress the UK's ailing policy. As part of the quantitative easing policy, the BoE will pump £75 billion of new money into the economy, financed through the issuance of central bank reserves.

This money will be put towards the purchase of private sector assets through the asset purchase facility, along with buying medium to long term gilts in the secondary market. Sterling's woes were further compounded by weak economic data.

The Royal Institution of Chartered Surveyors published figures indicating UK home sales dropping to its lowest since 1978, with the average number of transactions falling to 9.5 per cent in the quarter through February. UK manufacturing output fell by 2.9 per cent in January.

In the week ahead, the sterling may come under further pressure as claimant count unemployment figures and the ILO unemployment rate are due for release.

Range for previous week: $1.4108 - $1.4660 (Dh5.1833 Dh5.3860).

Range for this week: $1.3653 - $1.4181 (Dh5.0147 Dh5.2087).

The yen faced fortunes similar to that of the dollar over the past week as renewed risk appetite, spurred on by resurgent stock markets, reduced safe haven flows and heaped downward pressure on the currency. The yen weakened as the economy's unadjusted current account balance moved into deficit for the first time in 13 years in January.

The yen fell sharply over Friday's trading session following news of the Swiss National Bank's (SNB) currency intervention to reign in the appreciating Swiss franc.

Range for previous week: 92.75 to 98.70 yen (Dh0.03722 Dh 0.039612).

Range for this week: 95.56 to 99.15 yen (Dh 0.038436 Dh0.037045).