Euro on a roller-coaster ride as greenback comes under pressure

The euro has been on a roller coaster ride and grabbed most of the currency headlines last week as it slid to one-month lows against the dollar amid speculation the European Central Bank would cut interest rates next week.

In the past few weeks the euro touched a record high just above $1.29 and drop-ped slightly below $1.24.

While attention focused on the single currency, the dollar also set a series of three-month highs against the yen. It reached 109.82 yen, prompting talk it would end the Japanese March 31 fiscal year above 110 yen — a view that just two weeks ago was considered extreme.

Euro

The dollar started the week on a positive note extending its gains as investors kept adjusting positions after aggressive selling in the recent months. However, once the euro touched the technical low, profit taking emerged and pushed the greenback lower again.

Federal Reserve Chairman Alan Greenspan was slated to make a few speeches during the course of the week. In the first speech he gave some fairly positive comments on the US economy, saying delinquencies had stabilised and that balance sheet were relatively in good shape.

As the week progressed, the focus shifted back to well-worn concerns about the US current account and budget deficits as well as prospects for US rates to stay low. Analysts say the dollar will remain under pressure as long as the US current account deficit continues to widen and US benchmark interest rates remain at 1 per cent, the lowest since 1958. On the economic front, US data for the week offered a mixed bag. Bad numbers on US consumer confidence sentiment dealt one more blow to the bulls.

The US Conference Board's measure of consumer confidence fell to 87.3 in February from 96.4 in January, this figure implies a growing disenchantment among US consumers with the economy due to lack of new jobs.

In Europe, economic data were not very good as well. The German Ifo index had its first fall in 10 months. The Ifo institute said the drop in its closely watched index came at 96.4 for February compared to 97.5 in January.

Close to the end of the week, the greenback got a jump-start as German Chancellor Gerhard Schroeder suggested the ECB should cut interest rates.

A few hours before the close of business, the dollar fell against the euro after a sharp fall in the University of Michigan's consumer sentiment report for February. Range for the week: $1.2300-$1.2800

Japanese yen

The week started with the Japanese yen trading above 108.50 and verbal jawboning from Bank of Japan's officials supporting the dollar. Japan's top financial diplomat, Zembei Mizoguchi said that currency market was moving in the right direction in the context of foreign exchange rate stability over the medium term.

Mizoguchi declined to comment on a report citing unnamed sources as saying the ECB and BoJ would be ready to intervene, if needed, to slow the dollars fall against the euro and yen.

By the end of the week, the dollar got a boost when International Monetary Fund Head Horst Koehler expressed understanding for Tokyo's massive currency intervention to curb the yen's rise.

The yen closed the week just a touch above 109.00 on the back of overall dollar weakness. Range for the week: 105.50 – 110.50

Sterling

Sterling was boxed within its range as most of the action was focussed on the European single currency and the Japanese yen.

Market sentiments are that BoE would continue to raise interest rates this year, adding to already attractive UK yields.

As the week progressed, sterling dropped against the dollar on a broad rally sparked after Federal Reserve Chairman Alan Greenspan's positive outlook for the US economy.
Data out from Britain was mixed. Consumer confidence took a bigger than expected tumble in February, with the BoE's interest rate hike of early February taking its toll on consumers. Range for the week: $1.8350–$1.8850

– Supplied by Corporate Treasury, HSBC, Dubai