NEWS / Foreign Exchange

Weekly Market Review

Forex report Mar.12-18, 2007

A busy week for economic reports in the US shifted the investors' attention back on the dollar, after the yen held the headlines for the weeks before. The investors' nervousness was reflect Monday, as the dollar fell, on speculation the inflation and consumer spending reports will show disappointing figures.

Concern over the US subprime lending market also affected the Greenback, pushing the yen higher though. The yen was trading at 117.60 per dollar from 118.25 late last Friday. Japanese economy grew at a faster pace than originally thought in the fourth quarter, according to a report published Monday.

The euro gained after comments from European Central Bank officials suggested further rate hikes might be needed in the eurozone. Although one more rate hike is certain within the next months, there are opinions the euro-zone might get to a 4.5% interest rate by year end.

Tuesday, a government report showed U.S. retail sales rose less than forecast last month, adding to the case for the Federal Reserve to cut interest rates soon. This, combined with rising worries over the US home mortgage sector, gave a bearish picture for the dollar. The Greenback dropped against the Euro, as well after the European currency draw support from a 5.8 reading in March for the ZEW Business sentiment index from Germany.

The odds of an interest rate cut through the first half of 2007 rose Wednesday, on the view that further turbulence in the subprime mortgage market, and the effect it was having on the stock market, will prompt the Federal Reserve to act over liquidity concerns.
The dollar posted modest gains versus the yen after a government report showed the U.S. current account deficit narrowed more than forecast in the fourth-quarter. For all of 2006, the current account deficit grew to a record $856.7 billion, totaling 6.5% of GDP.

The British pound recovered from earlier weakness, rebouncing from 1.9215 to 1.9355USD.

Thursday, several economic reports in the US confirmed a rising inflation, cutting speculation that the FED might lower interest rates by mid-year. The PPI jumped a 1.3% in February. The dollar also found some support after the Treasury Department said monthly capital flows to the United States posted a big gain in January, reversing a rare outflow in December. Manufacturing activity in the New York area was at the same level as last month. The dollar was little changed, but later in the afternoon started losing ground after the former FED president, Alan Greenspan expressed concerns over the subprime-mortgage market meltdown.

Data realeased early Friday morning in the US session showed the inflation is still strong, giving hope the FED will act accordingly, or at least not cutting interest rates in the near future. U.S. consumer prices increased 0.4% in February. The dollar stayed weak though, on general concerns over the state of the US economy. Short selling was backed up also by the U.S. consumer sentiment which fell in March to the lowest level since September.

For the week of March 19-25 we wil focus on the FOMC decision due out on Wednesday (the FED is widely expected to keep rates on hold). Also the BOJ is expected to keep rates on hold, at 0.50%. For the Sterling we have important data on Tuesday, and the BOE minutes later in the week. Any hint of a near rate hike by the BOE might push the Sterling above 1.9600USD again. For the euro we might have less volatility, unless the 1.3350 level is breached.