Geopolitical fears continue to dominate (page 3 of 3)

The Bank of Japan also decided to keep monetary policy unchanged, though the market remains more focussed on any possible shift in policy that may occur once BoJ Governor Hayami steps down later this week.

Range for the week: 119.00 - 124.00

Sterling

Sterling drove higher against the euro in the wake of better-than-expected data on the UK trade deficit, and was also helped by a dollar rebound that put the single currency on the defensive.

The Office for National Statistic said the country suffered a smaller than expected global goods trade deficit in December of 3 billion pounds, well down from November's record 4.1 billion figure. The data also showed Britain's trade deficit with rest of the world hit a hefty 34 billion pounds last year, the worst since records began over 300 years ago, but sterling took heart from the monthly figures.

Mid-week, sterling dropped to a three-week low of $1.6110 on concerns over the UK economy ahead of a Bank of England inflation report due later in the week. After last week's surprise interest rate cut, investors are concerned that the report might show the economy was set for a bigger slow down than initially expected.

Sterling weakened against the dollar and euro after the BoE quarterly inflation report dispelled the worst fear for the UK economy but held out little prospect of great improvement. Sterling breathed a sigh of relief immediately after the much-anticipated report was released, taking comfort from the BoE's assessment that economic growth would remain around trend for now. But it fell afterward as market digested the bank's warning of risk still ahead for the British economy and of a potential consumer and business sentiment downturn linked to the threat of war with Iraq.

On the political front, Chancellor of the Exchequer Gordon Brown said the government would carry out four more studies to assess the economic impact of the euro to complement the five tests the government has committed itself to completing by June.

Range for the week: $1.5900 - 1.6400