05.05.2008 08:49

Forex: weekly review

The dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the U.S. lost fewer jobs in April than economists forecast.
The currency appreciated versus the Swiss franc, the Swedish krona and the South Korean won this week after the Fed cut the target lending rate by a quarter-percentage point on April 30 and said ``substantial'' easing since September would help foster economic growth. The euro weakened as confidence among European executives and consumers fell in April.
``The tide is beginning to turn for the dollar on two fronts,'' said Jim McCormick, head of global currency strategy at Lehman Brothers Holdings Inc. in an interview on Bloomberg Radio. ``One is that the Fed is becoming less dollar-unfriendly. The other is a clear signal that economies outside the U.S. are starting to slow.''
The dollar increased 1.3 percent to $1.5424 per euro this week, from $1.5630 on April 25. It touched $1.5361 Friday, the highest level since March 24. The dollar rose 0.9 percent to 105.40 yen, from 104.42 a week earlier. It touched 105.70 yen, the strongest since Feb. 28. The euro fell 0.5 percent this week to 162.53 yen, from 163.15. The dollar has risen 3.6 percent from a record low of $1.6019 versus the euro reached on April 22. This was the second consecutive week it advanced versus the euro, the first time it posted back-to-back weekly gains since December.

Futures traders are betting for the first time since December 2005 that the dollar will gain against the euro, figures from the Washington-based Commodity Futures Trading Commission show.
The dollar gained 0.4 percent against the euro after the Labor Department reported that U.S. payrolls shrank by 20,000 last month following a revised decline of 81,000 in March. The median forecast of 82 economists surveyed by Bloomberg News was for a drop of 75,000.
The Fed cut the target rate for overnight lending between banks by a quarter-percentage point to 2 percent this week, the seventh reduction since September. Futures on the Chicago Board of Trade showed yesterday an 86 percent chance policy makers will keep borrowing costs unchanged when they next meet June 25, compared with 80 percent odds on May 1. The balance of bets is for a decrease of a quarter-percentage point.
The European Central Bank will hold its main refinancing rate at a six-year high of 4 percent on May 8, all of the 53 economists surveyed. The Bank of England will keep its benchmark interest rate at 5 percent the same day, according to the median forecast of 61 economists in a separate survey.

An index measuring sentiment among executives and consumers in the countries that use the euro fell to 97.1 in April, from 99.6 in March, the 11th consecutive drop, the European Commission said in Brussels on April 30. A separate report showed consumer inflation slowed last month.
``We got good U.S. news and bad European news,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``We have two forces moving hand in hand to help the dollar.''