US dollar remains currency of the week

Dubai: The US dollar remained the markets' currency of the week as most investors were seen to favour the greenback in times of uncertainty over other safe-haven currencies such as the Japanese yen, the Swiss franc, and gold.

The markets were also comforted by the G7 meeting held last weekend that pressed global leaders to refrain from policies that would fuel the revival of the feared currency wars which left investors in despair.

Attention will shift to the US this week, with the Federal Reserve set to hold its September policy meeting on Tuesday and Wednesday.

Many investors expect the US central bank's Federal Open Market Committee to take some form of intervention in the bond market to stimulate the sluggish economy.

During the week, a risk-asset bounce came in the face of more disappointing data on the health of the US economy. The September sentiment survey released on Friday shows consumers still pretty discouraged. Stronger than expected inflation data for August, could restrict the US Federal Reserve in applying further support.

Euro

The euro headed for its best week in eight against the dollar on Friday but the gains appeared to be running out of steam as investors deemed policymakers' latest action insufficient to solve Europe's debt crisis.

With Europe's debt troubles lingering and the United States unlikely to announce a third round of quantitative easing, analysts see the euro remaining under pressure, with any dollar weakness likely be used as a buying opportunity.

Spreads of Eurozone government bonds have tightened as funding concerns have eased somewhat. The yield on Italian 10-year paper is down 19 basis points at 5.41 per cent, as the Eur-opean Central Bank was believed to be in the market, though it should be noted that yields remain at unsustainably elevated levels.

Range for previous week: $1.3499-$1.4275 (Dh4.9581-Dh5.2389). Range for this week: $1.3850-$1.4020 (Dh5.0871-Dh5.1495)

Sterling

Sterling reversed early losses versus the dollar on Friday as investors booked profits on short positions, but it remained within sight of an eight-month low, determined by signs Bank of England officials were heading toward more monetary stimulus.

The pound rose against a broadly weaker euro which fell in light trade, with traders unconvinced that a meeting of EU finance ministers would result in more aggressive action on the region's debt crisis. Many argue sterling will remain under selling pressure given growing speculation of more quantitative easing which would be sterling-negative as it would flood the market with more pounds and the ongoing risks to the UK economy from the Eurozone debt crisis.

Minutes from this month's Bank of England policy meeting will be watched next Wednesday for signs of whether greater emphasis was placed on the need for more stimulus. Markets expect interest rates to remain around historic lows at least until the end of 2012, with some further easing of policy also being factored in.

Range for previous week: $1.5704-$1.6186 (Dh5.7681-Dh5.9451). Range for this week: $1.5650-$1.6023 (Dh5.7482-Dh5.8852)

Yen

Tax hikes worth $146 billion were proposed by Japan's government on Friday to help fund rebuilding from the devastating March 11 earthquake and tsunami. Income, corporate and consumption tax increases were among the options a government tax panel said it had proposed.

To limit the tax burden, Tokyo is seeking to sell stakes in Japan Tobacco Inc and unlisted Tokyo Metro to fund rebuilding in areas devastated by the magnitude 9.0 quake and tsunami earlier this year.

Since before the March disaster, the Democrat-led government has been seeking a cut in the corporate tax rate to promote domestic investment. With a rising yen threatening to derail the economy's recovery from a recession triggered by the March disaster, a ruling party policy panel proposed creating a fund to mitigate the strong currency's impact as one of its recommendations for the third extra budget. It also called for tapping Japan's $1.2 trillion in foreign reserves to support corporate fund-raising as concerns mount over financial market strains from Europe's sovereign debt crisis.

Range for previous week: 76.51 yen-77.85 yen (Dh0.048001-Dh0.047180). Range for this week: 76.00 yen-77.00 yen (Dh0.048329 -Dh0.047701)