07.07.2008 10:54

FOREX: weekly review

The euro fell against the dollar last week on bets a worsening economic outlook will deter the European Central Bank from increasing borrowing costs again. The 15-nation currency posted its first weekly decline since mid-June after ECB President Jean-Claude Trichet said he has ``no bias'' following the decision to raise the main refinancing rate by a quarter-percentage point to 4.25%. Speculation that he would signal more than one rate increase helped the euro trade as high as $1.5909 this week.

Trichet played down at a July 3 press conference the prospects of interest-rate increases, saying this week's quarter-point boost will help bring inflation back below the ECB's preferred limit of 2%. Trichet said he had ``no bias'' on further rate moves. European inflation accelerated to a 16-year high of 4% in May. Economic growth may weaken to 1.5% next year from 1.8% this year and 2.6% in 2007, according to ECB staff.

Growth in the countries that use the euro can improve in the fourth quarter after a slow expansion in the second and third, Trichet said July 3. Annual growth in German industrial production slowed in May to 3.5%, from 4.8% the prior month, according to the median forecast of analysts. It would be the slowest pace since August 2005.

Trichet's comments helped counter a Labor Department report showing U.S. employers eliminated jobs in June for a sixth consecutive month. Nonfarm payrolls fell by 62,000 last month, following a revised drop of 62,000 in May, the Labor Department said. The median forecast of economists was for a decline of 60,000. The jobless rate stayed at 5.5% after jumping in May by the most in two decades.

Japan's currency fell 2.8% last week against the South African rand and 0.4% versus the Australian dollar as confidence among Japan's largest manufacturers fell to a four-year low, encouraging investors to borrow in Japan and buy higher-yielding assets elsewhere. The Tankan index of manufacturer sentiment slid to 5 points in June from 11 in March, a third quarterly decline, the Bank of Japan said today in Tokyo. Japan's target lending rate of 0.5% compares with 12% in South Africa and 7.25% in Australia.