Markets back on a war footing (page 2 of 2)

arms inspector Hans Blix. A gloomy February U.S. payrolls report heaped additional pressure on to an already weak dollar, pushing euro/dollar to 1.1067 level, its highest since March 1999. The U.S. Labor department reported an unexpectedly large drop of 308,000 in the number of Americans employed last month, while the jobless rate edged up to 5.8 pct from 5.7 pct.

In late New York trading, the greenback recovered some of its losses on unconfirmed news reports that U.S. and Pakistani authorities might be closing in on Al Qaeda leader Osama bin Laden. The reports gave a strong boost to U.S. stocks and the dollar, which retreated back to 1.1007 level against the euro at close of the trading session.

Range for the week: $1.0750 - $1.1250

Japanese Yen

The yen started the week undermined against the dollar following confirmation late last week from Japan's Ministry of Finance (MoF) that it had covertly intervened in the forex market for the second consecutive month in February.

Traders were prompted to sell the Japanese currency after BoJ data revealed that it had spent approximately 500 billion-yen in February to curb excessive yen strength. USD/JPY hovered around the 118.20 level.

The greenback drifted lower against the yen in the course of the week amid broad-based dollar weakness. However intervention fears prevented dollar/yen from breaking below the key 117.00 level. Market talk remained rife that the Bank of Japan would be bidding for dollars in the 117.10-20 yen range.

On the last trading day, reports that the Bank of Japan had intervened to prop the dollar after the Japanese session close were never substantiated. But whatever action could have taken place proved futile as the dollar began tumbling ahead of the release of the US employment report, and later extended its fall to a 6-month low of 116.38.

The currency pair lost a full yen at the release of the US data and growing market conviction that war in Iraq was imminent, but later pared most of those losses to regain the 117 level. Meanwhile the Nikkei- 225 index fell 2.7% to end at 8,144, its lowest close in 20 years.

The yen may be subject to more gains as repatriation looms ahead of the current fiscal year end on March 31.

Range for the week: 115.50- 118.50

Sterling

Sterling also gained ground against the dollar despite the release of gloomy UK economic data. The Nationwide building society said house prices rose only 0.4 percent in February, the slowest pace since October 2001, suggesting that the heady price rises that have helped fuel a spending boom and insulate the economy from the worst of the global slowdown may finally be coming to an end.

Additionally, the Confederation of British Industry (CBI) reported lacklustre retail sales growth for the third consecutive month as the threat of a war and a slowdown in the housing market hit confidence. The market also got a reminder of the UK's exposure to Iraq risks as Britain's Chancellor of the Exchequer Gordon Brown pledged the government would find all the necessary money to fund a possible war with Iraq and the battle against international terrorism.

Most of the sterling's gains came about after U.S. Treasury Secretary Snow's comments raised fresh doubts over Washington's commitment to a strong dollar policy, and sent the greenback reeling across the board. Sterling rose to a two-week high at $1.5999 following Snow's comments. Meanwhile, the Bank of England's decision to keep interest rates unchanged at 3.75 percent was widely expected and had little impact on sterling.

Sterling tested levels of $1.6092 on the last trading day as mounting fears of an imminent U.S. led war against Iraq and poor U.S. employment data prompted flows out of the greenback.

Range for the week: $1.5800 - $1.6300