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The dollar paused for breath on Friday after rallying against other major currencies throughout the week amid ongoing investor concerns over eurozone debt and the US Federal Reserve’s decision not to embark on more monetary easing.
The dollar was flat against the euro at $1.2543 and the pound at $1.5590 following sharp rises in the US currency the previous day after US economic data disappointed investors and a late downgrade of various global banks by Moody’s, the rating agency, increased risk aversion.
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The euro was largely unchanged on Friday following a survey showing German business confidence had fallen to its lowest level in more than two years. But over the course of the week, the single currency had fallen nearly 2 per cent from its weekly highs on Monday above $1.27 following shortlived investor optimism following last weekend’s Greek election.
Hopes during the week that European politicians would agree a fresh deal to help eurozone peripheral states including Spain and Italy manage their debt burden had faded by Friday, with markets looking ahead to an EU summit next week to provide a solution.
Currency analysts at investment banks were broadly urging caution on the single currency during the week ahead amid political uncertainty over the outcome of the summit.
“We consider the potential for disappointments of next week’s EU summit to be high,” said analysts at Commerzbank.
“The euro-dollar rebound is now complete, in our view, and we expect a resumption of the major down trend,” said analysts at Morgan Stanley.
The dollar index was up nearly 1 per cent over the week, with the US currency surging on Thursday in the wake of the Federal Reserve’s decision to extend its asset-purchase programme, Operation Twist. Some investors had sold the dollar before the decision in the expectation the US could announce further monetary easing in the form of so-called QE3.
The pound was down 1.2 per cent from a weekly high on Wednesday of $1.5777 following the release of minutes from the Bank of England’s Monetary Policy Committee indicating that four out of nine members had voted for further monetary easing in the UK earlier this month.
The yen ended the week significantly weaker against the dollar, reaching its lowest level against the US currency in more than a month to touch Y80.50 on Friday. The dollar rose 2 per cent against the yen across the course of the week.
