Euro set to rise higher against the US dollar (page 2 of 2)

Whilst the euro remained the cream of the markets and blasted away to a fresh four-year high against the yen, warnings by Japanese finance officials kept a check on movements in dollar-yen levels. A sharp drop in the Nikkei stock index, which hit a 20-year low following a shock earnings report from Sony Corporation, also undermined the yen.

As the week progressed, weaker dollar sentiment continued to gather momentum around the world sending the dollar down against most major currencies. Wariness over possible Japanese intervention kept a lid on the yen, whilst strong yen-selling demand from Japanese investors wishing to buy higher yielding foreign assets also helped keep the yen under check.

Japan's top financial diplomat, Zembei Mizoguchi, warned that the concerned authorities stood ready for action if movements in the forex market were deemed too excessive. Mizoguchi's comments were taken seriously by market participants who showed muted reaction to a Reuters survey of Japanese manufacturing that showed the sector expanded for the first time in eight months.

Despite mounting worries about a global slowdown, the SARS outbreak and a fall in Tokyo share prices to 20-year lows, the overall index rose to 50.1 in April from 48.9 a month earlier.

Meanwhile, the yen fell to a fresh four-year low of 133.38 against the euro in the after-math of the US ISM manufacturing report, but moved higher against the dollar to test a one-month high of 118.15, as market players went on an aggressive dollar-selling spree.

An article published by Japan's Jiji press stating that the three-party ruling bloc will call for flexible yen-weakening market intervention as part of emergency economic proposals, helped the dollar bounce back after trading indecisively in the wake of lacklustre US economic data.

The yen is likely to be range bound in the week ahead as markets will be wary of intervention by Japanese authorities, who are likely to step in if the currency breaks above the 118.00 barrier.

Range for the week: 117.00 -121.00.

Sterling

The British Pound started the week in a fighting mood as it recovered from four-year lows against the euro, after a shock fall in German business sentiment took some gloss away from the single currency.

The Confederation of British Industry said that the United Kingdoms' own gauge of confidence among firms fell to -27 in April from -19 in March, but the news failed to have much of an impact as market players were pre-occupied with developments related to the single currency.

With markets largely dominated by trading patterns in euro/dollar, sterling recommenced its downward momentum against the euro, after breaking through key chart levels.

The pound, which had drawn support from healthy UK retail sales and consumer confidence data that suggested a turnaround in the economic fortunes of Britain, relinquished all those gains as the euro staged a sharp comeback despite good US data.

Meanwhile, surprisingly good retail sales data helped sterling, as it combined with bright consumer confidence to lead markets to cut back expectations of further monetary easing by the Bank of England, lessening pressure on the currency.

As the week progressed, Sterling resumed it's tumble against the euro, as it dipped close to 70 pence for the first time in 4 years, with many keen to push it towards the launch price of 70.80 pence per euro.

Meanwhile, comments from Chancellor of the Exchequer Gordon Brown, defending his economic growth forecasts during a testimony to the parliament's Treasury Select Committee, failed to help the currency and did nothing to change the market's view about the chancellor being overly optimistic about UK's economic prospects.

A series of dismal economic data from the US and a surprisingly optimistic manufacturing index in the UK, pushed Sterling higher to $ 1.6114 - it's highest since March 13, as the greenback was at the receiving end of a massive onslaught by the euro.

The week ended with renewed speculation of a rate cut at next week's Bank of England meeting taking Sterling beyond 70 pence per euro for the first time since January 1999.

The Bank of England's policy makers will meet next week, with a slim majority of analysts predicting a further quarter point cut from the current 3.75 pct - already at a 48-year low; a move which may put pressure on the currency as investors continue to look for higher yields.

Range for the week: $ 1.5880 - $ 1.6280.