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Dollar recoups early loss after Fed's 15th rate rise(Gulf News Via Thomson Dialog NewsEdge)Rate expectations in the United States and the eurozone remain the overarching theme in the currency markets. In Japan, strong data could bring forward forecasts for the first rate rise, perhaps as soon as July. Euro Sentiment was cautious early last week as markets expected a 25 basis point rise in the Federal funds rate to 4.75 per cent, the 15th straight rate rise since mid-2004. At the January meeting, the Fed tweaked its statement to say further policy tightening may be needed, but the central bank will respond to the changing economic outlook as necessary. The dollar has been vulnerable to any evidence suggesting the Fed is set to stop raising rates soon, especially as the European Central Bank has made it clear it plans to keep increasing rates and as the Bank of Japan moves closer to doing so before year end. At mid-week the dollar slipped against the euro, succumbing to profit taking after scoring gains earlier last week on the Fed's signal that it is not quite finished raising interest rates. A barrage of speculation also helped fuel euro gains, including rehashed talk of more euro buying due to reserve diversification and rumours that the White House had issued a statement in support of a weaker dollar. The last trading session witnessed the dollar recoup most of its losses after a slew of economic data reinforced the view that the Fed will most likely raise US interest rates at least once more this year. Despite its rebound, sentiment has been shifting against the dollar with the ECB expected to raise interest rates to 3.25 per cent in 2006 from the current 2.5 per cent, narrowing the interest rate differential with the United States. In the coming week, business surveys across major economies as well as US jobs data this week will give early clues on March performance and shed light on the likely speed and size of interest rate rises to come. Last week's range: $1.1975-$1.2175 (Dh4.3984-Dh4.4719) Range for this week: $1.2000-$1.2300 (Dh4.4076 -Dh4.5178) Yen The yen surged against the dollar at the onset of the week as buying by Japanese investors before the end of the fiscal year triggered a wave of short covering. Speculation that China will allow the yuan to strengthen further against the dollar after a visit by two prominent US senators also spurred gains in the yen, which is often traded as a proxy for the Chinese currency. As the week progressed, the yen briefly retreated after data showed industrial production in Japan fell 1.7 per cent in February from the previous month, the first drop in seven months and much bigger than forecasts for a 0.1 per cent dip. Expectations that Japanese investors would start to put money to work in foreign bonds as the new business year kicks off this week, also hobbled the yen. The outlook for short-term interest rates is still the dominant theme for currencies and for now all signs point to interest rates marching higher in the US, eurozone and eventually Japan. Data for the week includes Bank of Japan's Tankan business sentiment survey, which is forecast to rise to +23 in March from +21 in December. Last week's range: 116.24 yen-118.24 yen (Dh0.031063 -Dh0.031598) Range for this week: 116 to 119 yen (Dh0.030866-Dh0.031664) Sterling Sterling hit an eight-month low against the euro and fell half a per cent against the dollar as investors weighed the possibility of an interest rate cut in Britain against the chances of rate rises in the eurozone and US. The BoE holds its monthly policy meeting this week, but is not expected to change interest rates. Last week's range: $1.7313-$1.7465 (Dh6.3590-Dh6.4149) Range for this week: $1.7200-$1.7500 (Dh6.3170-Dh6.4278) HSBC Global Markets Middle East |