Bush backs a strong US dollar (page 2 of 2)

stance of favouring a strong dollar.

Moreover, an earthquake, which hit northern Japan near the city of Sendai pushed the yen lower against the dollar and the euro. The earthquake caused house fires in the downtown area, snarling communications and rocking buildings as far away as Tokyo 302 kilometres.

The quake measured 7.0 on the open-ended Richter scale, about the same strength as the devastating quake in the Japanese city of Kobe eight years ago. However, there was no word of casualties and no major damage reported.

As the week advanced, USD/JPY rocketed to 119.00 levels amid repeated warnings of Japanese intervention, with speculations that Japanese authorities may have already stepped into the market and intervened when the dollar fell to around 116.20 yen.

Later in the week, Japanese officials confirmed that the government sold 3.9825 trillion yen ($33.7 billion) in May, a record single month figure, after refraining from intervening in April.

The move aimed to maintain a weak yen in order to protect its fragile export sector, one of only a few bright spot in an otherwise dismal economy and sent the yen to 119.63 levels against the dollar.

Range for the week: 116.00 -121.00

Sterling

The British pound hit 1.6471 levels against the weakening dollar at the start of the week tracking EUR/USD trend, with little UK economic data scheduled for release in the week.

Later in the week, sterling failed to extend its rally and fell below $1.6400 levels, after the release of the bright U.S. data, which indicated that the U.S. economy may be doing slightly better than markets had expected.

Bank of England's interest rate decision next week will be on top of the agenda. Minutes of the MPC's early May meeting showed the committee voted 5-4 to leave rates steady at 3.75 percent. U.K. housing and consumer data also bolstered the view that the BoE would keep interest rates on hold.

UK consumer confidence returned to pre-Iraq war levels, with Martin Hamblin GfK's barometer rising to -3 in May from -5 in April. Meanwhile, Nation-wide Building Society data showed house prices were up 21.3 pct in May from a year earlier, the weakest figure since July 2002 and down from the 22.2 pct in April.

In addition, the announcement on June 9 of the Treasury's assessment of whether five economic conditions have been met for British to join the euro will be a key focus next week.

Range for the week: $ 1.6000 - $ 1.6500.