US dollar lurches up and down (page 2 of 2)

The Fed meets on 24-25 to decide on interest rates, which are already at a four-decade low of 1.25 percent.

Range for the week: $ 1.1600 - $ 1.2100.

Japanese Yen

The Japanese yen commenced the week trapped in narrow ranges versus the dollar as nervousness crept into the market over how the Freddie Mac story would develop.

Japanese institutional investors are believed to hold large volumes of bonds issued by the company. Data released from Japan showed, that companies cutting back on machinery orders in April, indicating concern over their future prospects.

Furthermore, Japan's trade surplus fell 0.6 percent to 993.8 billion yen in April compared with a year earlier as global demand for Japanese exports such as cars and electronics slowed.

Japanese yen gained versus the dollar as the week progressed due to mixture of factors including demand from foreigners buying Japanese stocks and from domestic firms preparing to transfer assets to state pension funds. Japanese Central Bank as expected left its monetary policy unchanged, leaving its current account deposits target at 27 to 30 trillion yen.

The BoJ stepped up its efforts to alleviate funding problems at small business promising to buy debt securities including those considered below investment grade. The central bank said it would buy up to one trillion yen in asset-backed securities with credit ratings as low as BB, a move aimed at helping small firms having difficulties borrowing from Japan's struggling banks.

At the end of the week yen was not able to gain further on the back of troubled dollar, due to fear of Bank of Japan intervention. Zembei Mizoguchi repeated his comments that further rise in the yen was unwarranted and that authorities would act if needed to correct excessive moves in the foreign exchange market.

A stronger yen may help push Japan into recession for the fourth time in 12 years as it makes it more difficult for exporters to compete with rivals overseas and reduce their revenue from outside Japan in yen terms.

Range for the week: 115.00 -120.00.

Sterling

Sterling tumbled at the start of the week after UK Treasury studies suggested its would need to weaken substantially before euro entry.

The pound was further undermined after British Finance Minister Gordon Brown sounded upbeat about euro entry prospects and left the door open for another review next year.

Brown told Parliament economic conditions are not in place to allow Britain to join the euro but he pledged to look again at the case for the euro entry in 2004 and said, if it was made, the government would hold a referendum.

However, mid-week, sterling nudged higher against the struggling dollar testing a three-and-a-half year peak of $1.6732 as market attention turned from Britain's debate on joining the euro to the pound high yield.

The pound has been buoyed recently by an attractive interest rate differential against both the dollar and the euro, which was augmented when the Bank of England kept rates steady last week while the ECB cut half a point. Currently sterling enjoys a 2.5 percentage yield over the dollar and 1.75 point spread over the euro.

Range for the week: $ 1.6450 - $ 1.6950.