Euro set to rise higher against the US dollar (page 1 of 2)

Euro

The euro held strong at the start of the week, as weaker than expected economic data released at the end of the previous week placed the greenback on a defensive footing.

The single currency was also supported by a steady inflow of funds into higher-yielding European assets, as disappointed investors shifted their funds across the Atlantic in to the euro zone. A dip in the German Ifo business sentiment index and a downward revision to Germany's economic growth target for 2003 took some shine off the euro as the dollar capitalised and staged a mild recovery.

A surge in Wall Street aided by upbeat corporate earnings and a move towards solving the North Korean nuclear stand off were also seen as factors supporting the dollar's rebound.

Meanwhile, the release of US consumer confidence, which came in at a surprisingly high 81.0 in April from a depressed 61.4 in March, and recorded the largest rise since the Gulf war of 1991, caught the markets off guard as the forecast had only been for a reading of 68.7.

As expected, the dollar showed signs of a rally in the immediate aftermath, but disaster struck as it fell back heavily against the euro and recorded a fresh four-year low of $ 1.1135.

Whilst many analysts had difficulty explaining the dollar's fall following an impressive confidence reading investors unhappy with the meagre returns offered by the United States continued to rally round the euro seeking higher yields for their money.

Midweek, the thirst for the single currency continued undeterred as the murky US economy provided an excuse for investors to diversify their assets and chase the euro aggressively. Speculation that the US Federal Reserve may ease interest rates in the near future also piled on the pressure as the US unit succumbed to the pressure of the rampant euro.

Alan Greenspan, chairman of the US Fed, confirmed this view in his testimony before the House of Representatives stating that there was room for US interest rates to fall further. As the week progressed, the release of the Institute of Supply Management's manufacturing index added salt to the dollar's wounds as it dipped to 45.4 in April against expectations of a rise to 47.3.

Bearish signs in the US labour market also undermined the dollar, with weekly jobless claims recording a dip of 448,000, much higher than the number anticipated. As the data cast a dark cloud over the prospects of the US economy, the single currency skyrocketed to a fresh four-year high of $ 1.1287 as investors continued to shy away from the US unit.

The week ended with a bleak US jobs report, which showed unemployment edging up to 6.0 pct in April, from 5.8 pct in March. Although the overall number of job losses were less than expected, concerns over the manufacturing sector which shed jobs for the 33rd straight month, put a dark cloud over the US economy and its' currency.

The US Federal Reserve and European Central Bank meetings next week will be closely watched by markets across the globe, but many analysts expect both offices to return a no-change verdict at their respective meetings.

Range for the week: $ 1.1050 - $1.1450.

Japanese Yen

The Japanese yen started the week on a mixed note as it came under pressure from investors looking to dump the currency due to political tension in North Korea and the uncertainty over SARS.

The greenback's broad-based weakness against european currencies came to the yen's rescue as the Japanese unit managed to put on an encouraging display in an otherwise lacklustre market.