16.06.2008 11:03

FOREX: weekly review

The dollar posted its biggest weekly gain versus the euro in three years as traders bet the Federal Reserve will increase borrowing costs this year and Irish voters may have rejected a European Union treaty.
The U.S. currency rose to a one-month high against the euro on bets Group of Eight finance ministers meeting this weekend will signal they favor a stronger dollar. The yen was poised for a fifth weekly drop against the euro after the Bank of Japan left its target lending rate at 0.5 percent, the lowest among industrialized nations.

The U.S. currency climbed 2.7 percent this week against the euro, the biggest increase since June 2005. The dollar rose 3.1 percent versus the yen, the most since December 2004. The yen decreased 0.3 percent versus the euro in its longest stretch of losses since October.
``People will likely keep pricing in Fed rate hikes,'' said David Powell, a currency strategist at Bank of America Corp. in New York. ``That will help the dollar.''
Fed funds futures on the Chicago Board of Trade show a 60 percent chance the central bank will increase the 2 percent target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago.
The 15-nation euro weakened as Irish voters turned down the European Union treaty, a setback for the bloc's plans to strengthen its global voice. Results from yesterday's national ballot on the Lisbon Treaty show opponents defeated supporters by 53.4 percent to 46.6 percent.
``The rejection of the treaty undermines the EU's public legitimacy and may influence public sentiment in countries contemplating joining the euro zone,'' wrote Geoffrey Yu, a currency analyst at UBS AG, in a note to clients today. ``This change may undermine the ECB's price stability mandate in favor of a growth mandate.''
French Finance Minister Christine Lagarde, before meeting with her G-8 counterparts in Osaka, Japan, told reporters that the U.S. dollar's increase versus the euro is ``very satisfying.'' The group comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada and Russia.
The U.S. currency strengthened versus the euro on June 9 after U.S. Treasury Secretary Henry Paulson said in an interview with CNBC that he would ``never'' rule out intervention. Fed Chairman Ben S. Bernanke said on June 3 that he's aware of the impact a falling currency can have on price expectations.
``There's a serious intent in defending the dollar,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It seems the days of benign neglect are over.''
Consumer prices rose 0.6 percent in May after a 0.2 percent increase the prior month, the Labor Department reported Friday in Washington. The median forecast of 84 economists was for a 0.5 percent advance.
Fed funds futures on the Chicago Board of Trade show a 61 percent chance the central bank will increase the 2 percent target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago. There's a 27 percent chance policy makers will lift the rate to 3 percent by December.