Sterling takes a beating (page 1 of 2)

Euro

The dollar commenced the week on a firm note after the weekend meeting between the Group of Seven (G7) finance ministers and central bankers gave no surprising remarks about currency movements, but said they would co-operate closely on forex.

The single currency came under broad-based pressure after the European Central Bank indicated it could trim interest rates in the next few weeks. ECB President Wim Duisenberg, speaking on the sidelines of a G7 meeting in Paris said the bank's hoped for economic recovery later this year was no longer certain.

Duisenberg also said the central bank's hands would not be tied by a possible Iraq war, which was interpreted as a clear signal that the ECB could cut interest rates in the near term. The ECB's key rate is currently 2.75 pct and will next be reviewed at the ECB policy meeting on March 6.

Meanwhile, news regarding a potential war on Iraq continued to weigh on the dollar. Fears of war simmered after the United States and Britain circulated a draft United Nations resolution that declared Baghdad had failed to take advantage of its final opportunity to disarm peacefully.

France and Germany came out strongly against the draft and most other members of the U.N. Security Council at this stage oppose a swift move to war. The euro rose broadly testing $1.0800 levels after Chief U.S. weapons inspector Hans Blix said he saw no shift in Iraq's co-operation in disarming, raising fears the U.S. could further insist on an armed confrontation.

The dollar survived a short-lived setback on news that U.S. consumer sentiment dipped in February. Consumer confidence as reported by the Conference Board, fell sharply and unexpectedly to the lowest level in nearly 10 years. The reading of 64.0 was nearly 15 points lower than January's levels and well below economists' expectations of 76.8.

The dismal judgement was in sharp contrast to a better-than-expected reading on Germany's business climate, as measured by the closely watched Ifo index. The index rose to 88.9 in February from 87.4 in January, way ahead of expectations and its highest level in seven months. However, an unexpectedly large rise in U.S. durable goods orders, which surged 3.3 percent in January helped the greenback recover ground against the euro.

Towards the later part of the week, the dollar also got a temporary boost from a Commerce Department report which said the U.S. economy grew by 1.4 percent in the fourth quarter from an initial reading of 0.7 pct.

On the geopolitical front, news that Iraq was willing to destroy missiles determined to be in violation of United Nations rules, helped the dollar to gain momentum against the euro, which slipped 0.34 pct to $1.0745 per dollar. Iraq said missile destruction could begin on Saturday, but both the United States and Britain said Baghdad was stalling in order to avert war.

In the coming week, the ECB holds its policy meeting on Thursday and markets are divided on the chances of a 25 or 50 basis point cut in the key-refinancing rate. US employment data regarded as the most important economic indicator for financial markets is due on Friday.

Range for the week: $ 1.0600 - $1.1100

Japanese Yen

Japan's nomination of a new central bank head sent the yen to a one month high against the dollar, as traders speculated the new chief would not adopt policies that will lead to a weaker yen. After weeks of speculation, Toshihiko Fukui, was nominated to replace outgoing Masaru Hayami.