Further euro gains are to be expected near-term (page 2 of 2)

Range for the week: $1.1500 - $1.2000

Japanese Yen

Japanese government officials reiterated their intervention warnings at the start of the week as the USD/JPY currency pair traded around the 115.50 level.

Japan's Ministry of Finance (MoF) official Zembei Mizoguchi said there was no change in the nation's foreign exchange stance and that rates should reflect fundamentals and move in a stable manner. He also added that the G7 had agreed to co-operate on forex, if necessary.

Dollar/yen fell to 115.10, its lowest level since February 2001 as market players focused on U.S. Treasury John Snow's comments, despite jawboning from Japanese officials. However, the currency pair witnessed a sharp rebound of about two yen, helped by what traders thought was Japan's most aggressive intervention this year.

Japanese authorities declined to comment on whether they had intervened but Finance Minister Masajuro Shiokawa said on the following morning, that such action should be taken if there were unnatural moves in the market.

Thereafter, the greenback managed to hold ground close to or above the 117.00 level, for most of the trading week, as market players remained wary of intervention.

Separately, the Japanese government's bailout of Resona Bank, Japan's fifth largest bank heightened worries about the stability of the nation's financial system. Resona Bank will receive a public funds injection amounting to 2 trillion yen, and is seen boosting the bank's capital adequacy ratio which fell below the minimum accepted limits.

The greenback briefly touched a high near 117.80 yen on Thursday, with many attributing the move to sporadic yen selling by Bank of Japan.

Meanwhile the Bank of Japan downgraded its assesment of Japan's economy in its monthly economic report for the month of May. The BoJ cited activity remained flat due to a weak U.S. economy, the impact of SARS and volatile equity markets. The downgrade was the first since November 2002.

On the last trading day, the dollar's sell-off against the euro dragged USD/JPY below the 117.00 level, but lingering intervention fears helped support the greenback.

Range for the week: 115.00 - 119.00

Sterling

Sterling also rode the 'weak dollar' wave and catapulted to a high of $1.6468 in the course of the week. General dollar weakness helped to propel the pound higher while economic releases from the UK received an almost muted response.

Inflation data from the UK matched consensus forecasts and soothed fears that inflation could continue to creep higher. The key RPIX (retail price index) remained steady at 3.0%, marginally lower than the 3.1% forecast.

Meanwhile, minutes from the Bank of England's May 7-8 meeting indicated a 5 to 4 vote in favour of keeping interest rates unchanged at 3.75%.

Several opponents of an ease feared that reducing interest rates could trigger another steep fall in the sterling, which in turn could fan inflation even higher by raising the costs of imports. Other members expressed concern over the potential effects of a rate cut on encouraging a further rise in consumer spending.

Sterling recoiled modestly against the greenback after a marginal downward revision in the UK Gross Domestic Product (GDP) report. UK growth data showed an unrevised 0.2% qtr/qtr growth, matching the previous estimate, but annual growth was revised down to 2.2% from 2.3%.

Range for the week: $1.6100 - $1.6600