Euro drops against US dollar (page 2 of 2)

Gross domestic product has expanded at around a 2 percent annual rate, well under the 3-to-3.5 percent pace seen as the U.S. economy's long-term potential for growth. The single bright spot -- largely stemming from low interest rates -- has been housing. Other key sectors like manufacturing have been in the doldrums.

By the end of the week, greenback rallied higher helped by rising equity markets and expectations of stronger growth in the United States. Concern about job losses overshadowed relief about continuing low interest rates, the University of Michigan's well-regarded consumer confidence survey indicated.

More than 2 million US jobs have been lost in the past two years. While worries about the continuing paucity of work has been reflected in rising unemployment insurance payouts, although the growth in new claims seems to be slowing. Friday's University of Michigan figures showed confidence dipping in June, compared to the May figure.

But they were still better than many economists had feared. June's University of Michigan reading, as the survey is nicknamed, came in at 89.7, a fall from 92.1 the month before - but an improvement on the 87.5 economists had expected.

Elsewhere, euro zone current account data for April showed the region moved into mild deficit that month from a surplus in March and investment capital began to pour out of the region, although the average six monthly flows had been positive.

Range for the week: $1.1200 - $1.1700


Yen

Japanese yen traded in tight ranges for most of the week, as the market players were more interested in trading the higher yielding currencies. Fears of intervention underpinned the dollar round 117.50 yen.

But the yen's up trend has been limited as retail investors continued to flock to foreign bonds and investment trusts, especially in high-yielding currencies such as Australian, New Zealand and Canadian dollars.

Mid-week, yen started rising against the dollar due to demand from Japanese exporters trying to meet month-end obligations, until it suddenly reversed course.

Japanese monetary authorities have intervened in the market covertly to limit the yen's rise over the past few months in a bid to protect the competitiveness of the export reliant economy. By the end of the week, greenback had touched a high of 120.04 yen.

Range for the week: 116.00 - 121.00


Sterling

Sterling also started the week trading in tight ranges as the market was focused on the US interest rate decision.

As the week progressed sterling slipped against the dollar and euro after Bank of England Governor Sir Edward George said the pound's recent fall is helping to cushion Britain from the full impact of global economic weakness.

In a testimony to parliament's Treasury Select Committee, George added he did not see much chance of a big bounce in the exchange rate and the decline so far would raise the upside risks to inflation at the end of the BoE's two-year forecast horizon.

The British economy expanded at its weakest pace in 11 years in the first quarter as businesses and consumers retrenched in the run-up to the war in Iraq revised official data showed. The Office for National Statistics (ONS) said that GDP rose by only 0.1 percent in the first quarter, lower than the 0.2 percent previous estimate and average forecast by analysts.

The ONS said this was the weakest growth rate since the second quarter of 1992 when the British economy was struggling out of recession. On the year, GDP rose by 2.1 percent, down from the 2.2 percent estimate last month and the weakest rate in a year.

Markets mostly shrugged off the data as analysts reckoned that the Bank of England would be looking to more recent figures when it next meets to set interest rates. The BoE last cut borrowing costs in February to a 48-year low of 3.75 percent and many analysts expect it to cut again in the next few months if the economy keeps showing signs of weakness.

UK saw a current account surplus in the first quarter, Britain's first surplus since 1998. Data showed a first quarter current account surplus of 2.4 billion pounds versus a revised 1.8 billion-pound deficit in the forth quarter.

Range for the week: $1.6350 - 1.6850