Forex: Weekly review

The dollar recovered from a four-month low against the euro this week as fading investor risk appetite boosted haven demand for the US currency.

The dollar started the week on the back foot, hitting a low of $1.4037 against the euro on Monday as positioning data revealed that speculators on the Chicago Mercantile held record bets against the US currency.

The dollar, which also hit a four-month low against a basket of currencies on Monday, was suffering because of the diverging monetary policy stance between the Federal Reserve and other central banks, which are seen as more likely to lift interest rates to combat rising inflationary pressure.

The dollar rallied, however, as investor focus shifted from interest rate differentials towards concerns over global growth.

Sovereign rating downgrades for Greece and Spain, news of a surprise trade deficit in China and tensions in the Middle East all combined to depress investor risk appetite and weigh on equity and commodity prices.

The growing unease was compounded on Friday on news of the large earthquake in Japan.

Over the week, the dollar rose 1.2 per cent to $1.3817 against the euro, climbed 1.5 per cent to $1.6029 against the pound and was 0.6 per cent stronger at SFr0.9305 against the Swiss franc.

Commodity-linked currencies also came under pressure, with the Australian dollar falling 0.9 per cent to $1.0049 against the US dollar on the week, the Canadian dollar easing 0.4 per cent to C$0.9760 and the Norwegian krone losing 1.5 per cent to NKr5.6527.

The dollar was 0.1 per cent weaker at Y82.18 against the yen over the week, however, with the Japanese currency quickly reversing initial losses on Friday in the immediate aftermath of news of the earthquake.

Analysts said the safe haven characteristics of the yen were protecting the currency, with many believing that domestic investors would repatriate yen at times of crisis.

The yen also rose 1.3 per cent to Y113.53 against the euro on the week and climbed 1.6 per cent to Y131.66 against the pound.

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