A funny thing happened in global foreign exchange market last week: there were signs of a re-emergence of the sovereign debt crisis in the Eurozone, but the euro actually managed to eke out a gain against most of the G-10 currencies including the pound and the US dollar. This does not mean that the market did not take seriously the rise in Greek bond yields to nearly 9 per cent; instead, it was mostly centered in the bond market, rather than the FX market.
US treasury yields fell as volatility rose - The Fed initially stayed on the sidelines, which caused volatility to rise even more - the dollar sold off - Fed rhetoric sounded dovish towards the end of the week - volatility fell, yields rose, which helped to push the dollar higher.
While dovish sentiments from the Fed could boost the USD, the ECB has not taken a similar stand, even though its sovereign bond market was one reason why volatility spiked. The head of Germany's Bundesbank, Jens Weidmann, said on Friday that deflation risks to the Eurozone are low. He also voiced his concern about ABS asset purchases (the ECB's version of QE-lite), saying that it is a move towards a "QE philosophy", and he didn't mean it as a compliment.
His comments were reflected by ECB member Nowotny, who also dismissed inflation fears, saying that low inflation due to oil is actually positive. But currency analysts say the EUR could fall alongside Greek, Spanish, Italian and Portuguese bond yields if volatility continues to recede. Although the single currency made an attempt at recovery last week, the fundamental and technical outlook remains weak for the EUR.
In domestic market, the local currency remained stable against the dollar driven by unofficial intervention of the central bank for the interest of importers. Lower dollar price means, the lower cost against imports. The pressure on the US currency was, however, lower as most banks had sufficient inflow. The euro and the pound sterling lost grounds against the local currency, dealers said.
In interbank trade, the US dollar traded at Tk 77.40 per unit in line with its previous week's closing.
The euro traded at Tk 98.0039 per unit, while the pound sterling lost more than Tk 2.00 per unit and traded lower at Tk 123.1666 and the Australian dollar traded at Tk 67.4231.
The Japanese yen gained some paisa and traded at Tk 0.7232 from Tk 0.7159, according to dealers of different commercial banks.
The greenback recovered against a basket of major currencies after worrying economic data out of the euro zone and United Kingdom. Market analysts said concerns over a delay in the Fed's timeline for hiking rates hurt the dollar on Monday. An interest rate hike is expected to boost the dollar by driving investment flows into the US.
The dollar bounced back from a one-month low against the Japanese yen, while the British sterling fell against the greenback on data showing a drop in September inflation and an unexpected fall in the BRC indicator of retail sales in the United Kingdom.
While the dollar was up against the yen, the global growth concerns limited the safe-haven yen's losses.
The euro was last down 0.73 per cent against the dollar at $1.2658, and down 0.57 per cent against the yen at 135.41 yen. The euro hit an 11-month low of 135.05 yen.
The dollar was last up 0.17 per cent against the yen JPY= at 107.02 yen after hitting a one-month low of 106.68 yen earlier in the session. The dollar also recovered against the Swiss franc and was last up 0.61 per cent CHF= at 0.9539 franc.
Sterling GBP= was last down 1 percent against the dollar at $1.5921, not far from an 11-month low of $1.5906 hit earlier in the session. The dollar index .DXY, which measures the greenback against a basket of six major currencies, was last up 0.22 percent at 85.724.
Analysts at Forex.com said the EUR/USD pair extended its modest bounce last week, despite growing concerns of rising debt yields in peripheral countries. The GBP/USD dropped to a new 11-month low on Tuesday after shockingly weak inflation data pushed back expectations for the Bank of England's initial rate hike. Rates did manage to bounce back and regain the 1.60 handle by the end of the week, but the pair remains in a downtrend on a longer-term basis.
Meanwhile, the USD/JPY continued to grind lower last week, extending the recent rally in the safe-haven yen. The pair dipped all the way down to its previous breakout level at 105.50 before stabilizing late last week.