A roller-coaster ride for currencies (page 2 of 2)

May's unemployment rate rose to 6.1 pct as forecasted, but the number of jobs lost was only 17,000 and was better than the forecast of 39,000. Market attention next week will focus primarily on the release of US retail sales data for May, for further clues on the direction of the US economy, the dollar and interest rates.

Range for the week: $ 1.1600 - $ 1.2100.

Japanese Yen

The Japanese yen commenced the week on a mixed note as it came under pressure due to dollar-friendly comments by G8 leaders and dollar selling by Japanese exporters.

The dollar was also supported by wariness over possible intervention by the Bank of Japan after it conducted the largest ever yen-selling intervention in May, totalling four-trillion yen ($ 33.6 Billion), to stem the currency's rise.

The yen came under further pressure after Japanese Prime Minister Junihiro Koizumi told the G8 that he did not understand why the value of the yen was continuing to rise at a time when the Japanese economy is said to be in such bad shape. The dollar continued to firm against the yen helped by further comments from Japanese officials.

Haruhiko Kuroda, former vice finance minister for international affairs and now an advisor to Prime Minister Junihiro Koizumi, said in an interview that a dollar/yen exchange rate of 140 yen would be appropriate from a standpoint of purchasing power parity.

As the week progressed, market attention focussed on the European Central Bank's policy setting meeting, whilst the yen remained under pressure as the flow of comments from Japanese officials continued unabated.

Hiroshi Watanabe, head of the Finance Ministry's international bureau, said on Wednesday that his ministry would stay vigilant against speculative currency moves that pushed the yen higher.

Meanwhile, a rally by the European single currency, following a much awaited growth-boosting monetary easing, pushed the yen higher close to 117 yen per dollar, but caution over possible intervention kept a check on further gains.

Finance Minister Masajuro Shiokawa reiterated that Japan would take action in the foreign exchange market if found necessary, but added that the Government did not intent to manipulate currency rates.

Prime Minister Koizumi also joined the choir, saying that he wants to see a stable exchange rate. The yen ended the week with it's bearish tone intact as the dollar rallied aided by better than expected US non-farm payrolls data and rumours that the Bank of Japan had already intervened around 117.30 levels.

Range for the week: 116.00 -121.00.

Sterling

Sterling began the week on a calm note against the dollar and the euro and was unruffled by the release of the May factory survey conducted by the Chartered Institute of Purchasing and Supply Managers and Reuters showed the sector shrank more than expected in May.

With the Bank of England Monetary Policy Committee meeting scheduled for later in the week, sterling kept in step with euro/dollar rates, coming off recent four-month highs against the rebounding dollar but gaining against the retreating euro.

Data released by the Confederation of British Industry showed that Britain's services sector has stayed weak since the end of the Iraq war, with consumer service firms still affected by tepid demand.

Mid-week, the British pound retreated against the recovering dollar as markets showed little reaction to comments by Bank of England Governor Sir Edward George, who stated that there are potential benefits to euro entry but the one-size fits all interest rate would be a potential downside.

However, sterling received support by the CPI/Reuters services' sector survey index, which rose to 51.9 in May from 50.7 in April to record the highest reading since January. As the week came to a close the British Pound drew enormous support from the Bank of England's decision to leave interest rates steady as it confirmed Britain's status as a high-yielding destination for investors' funds.

Sterling was also aided by a broad pullback in the dollar, which was triggered by the ECB's decision to cut interest rates by half a percentage point, widely seen as a boost to economic growth in the euro zone. The move helped the pound to leap higher to a fresh 3-½ year high around $ 1.6700 levels as the currency increased its credence as a high-yielder.

Markets next week will focus attention on Chancellor of the Exchequer Gordon Brown, as he announces the results of the five economic tests carried out on euro entry to the British Parliament on Monday. Analysts said that the impact would be relatively minimal since Brown is likely to reject euro entry in the short-term.

Range for the week: $ 1.6350 - $ 1.6850.