THE US dollar ended the week flat against major European currencies while it rallied against the yen.
The US dollar-deutschemark went to a high of 1.8592 mid-week when the Bundesbank announced its decision to set target money market rates on weekly auctions instead of in the current bi-weekly council meetings.
The policy change came after a month of the Bundesbank hinting at higher rates. The repurchase rate has been at its historic low of 3 per cent for the past 12 months.
The dollar-mark fell further on the 0.6 per cent increase in German import prices in July, translating to an eight-year annual high of 4.2 per cent.
The overall fundamentals of the German economy do not warrant a rise in interest rates. However, the mark has weakened against the dollar 16 per cent in the past 12 months. While this has stimulated exports, there has been a commensurate rise in import prices, which could put pressure on inflation later.
Technically, 1.81-1.82 to the dollar provides good support. Looking ahead, expect the dollar-mark to range-trade and test 1.85 if US equities hold their ground.
