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In the approaching week, markets will look closely to see whether the US Federal Reserve's discount lending rate cut does indeed ease global financial market distress.
All eyes will be on the Bank of Japan on Thursday to see if there will be any change in their monetary policy. Markets expect that the interest rate will most likely be kept on hold at 0.5 per cent.
Other economic data keenly awaited include US durable goods orders and new home sales for July and Germany's ZEW investor sentiment index.
Euro
In the last two weeks, central banks around the world injected short-term liquidity into money markets to prevent the banking system from freezing up as investors became increasingly concerned over large bank and fund losses due to US subprime crisis.
During the week, the euro traded at one-month lows against the dollar after markets interpreted the European Central Bank's (ECB) injection of 47.67 billion euros to mean a September interest rate rise in the euro zone was now less likely.
The dollar found support against the euro after the release of positive US data, which showed that the US trade deficit narrowed in June and US producer prices excluding food and energy costs rose 0.1 per cent.
Euro weakness was seen across the board where the currency traded at roughly a four-month low against the yen as speculators unwound carry trades. Moreover, reports that Spanish bank Santander is facing a 2.2 billion euro exposure to high risk US loans pressurised the euro further.
Foreign exchange markets barely reacted to US consumer price data for July, which matched expectations, but focussed on European exposure to the US subprime mortgage sector.
The euro fell sharply versus the dollar, testing $1.3390 levels on the back of investors concerns and on increasing speculation that the ECB will not raise interest rates.
As the week came to an end, the euro gained ground against the dollar after a report showed US housing starts in July fell a more-than-expected 6.1 per cent.
Speculators continued to sell the dollar, where it moved away from seven-week highs against a basket of currencies after the Fed cut the interest rate charged on direct loans to banks by half a percentage point to 5.75 per cent.
Last week's range: $1.3358-$1.3709 (Dh 4.9066-Dh5.0355).
Range for this week: $1.3320-$1.3620 (Dh4.8927- Dh5.0029).
Yen
The yen rose to multi-month highs against the greenback, the euro, and the Australian and New Zealand dollars as investors continued to unwind risky positions in the market.
Japanese finance minister Koji Omi said that the peak of the effect of problems in the US subprime mortgage sector appeared to be over, but a close watch was needed on how it would affect the Japanese and global economy and financial markets.
The week came to an end with the yen trading near to a fourteen-month high versus the dollar as investors continued to unwind their carry trades. However, the yen's gains were limited as investors began to take profit.
Last week's range: 111.58 yen-118.56 yen (Dh 0.030982-Dh0.032919).
Range for this week: 112.70 yen-115.70 yen (Dh0.031747-Dh0.032593).
Sterling
The sterling remained under pressure with the release of disappointing labour data. The Office for National Statistics said average earnings including bonuses rose 3.3 per cent in the three months to June. This was below forecasts for a steady reading of 3.5 per cent and the weakest rate since June 2003.
By the end of the week, the battered British pound was trading at its lowest level in nearly a year against the yen and at a new two-month low against the dollar as high yielding currencies fell with investors unwinding carry trades.
Last week's range $2.0257-$1.9651 (Dh7.4404-Dh7.2182).
Range for this week: $1.9950-$1.9650 (Dh7.3276- Dh7.2174).
HSBC Global Markets Middle East.
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