US dollar resurges against euro and pound sterling

Euro

The European single currency slipped to a session low of $1.1259 at the start of the week after a surge in the U.S. stock market.

The Dow Jones industrial average gained 1.62 pct to 9,216 and the Nasdaq Composite jumped higher by 3.47 pct. The gains in global equity markets have triggered a sell-off in the global bond markets, which had propped up the euro in the first half of 2003.

Growing optimism about the U.S. economic recovery also weighed on EUR/USD. Moreover, remarks by German Economy Minister Wolfgang Clement who said that the euro zone's largest economy remained weak, increased the pressure on the single currency.

As the week advanced, the euro held steady after the European Central Bank kept interest rates unchanged at 2.00 pct, which was widely expected. However, the euro sharply fell on a media report that German Chancellor Gerhard Schroeder wanted the ECB to intervene to weaken the single currency.

In an interview in the Financial Times newspaper, Schroeder issued what the paper described as "a veiled call" for the ECB to intervene in the currency market to reduce the value of the euro and help European exports. Schroeder's statement took away gains in the EUR/USD that were made on the back of negative news in the United States such as weak jobless claims data and a drop on Wall Street.

Number of first-time U.S. jobless claims rose to higher than expected 439,000 for the week ended July 5. Meanwhile, company earnings failed to live up to expectations, which pressured stocks on Wall Street.

Next week financial market will focus on Federal Reserve Chairman Alan Greenspan's monetary policy testimony to the Congress. In addition, number of economic indicators will be closely watched such as the Philadelphia Fed manufacturing survey, the University of Michigan report on consumer sentiment and industrial production in U.S., while German ZEW sentiment survey will be watched in Europe.

Range for the week: $1.1050 - $1.1600


Japanese Yen

At the beginning of the week, the yen hit 118.10 against the dollar after the Nikkei average jumped to 10,027.60.

Meanwhile, the market hardly reacted to comments from Japan's top government spokesman, Yasuo Fukuda, who said latest moves in the currency market did not warrant any action by the authorities. The market also ignored Japan's official reserves, which amounted to a record-high of $545.618 billion at the end of June, up from $543.088 billion a month earlier.

As the week progressed, the yen kept an upbeat tone with growing optimism about the outlook of Japan's economy on brightening corporate sentiment. Ministry of Finance data showed that foreign investment in Japanese shares amounted to 1.2544 trillion yen ($10.64 billion), the second-highest level ever since March, when they bought a net 1.5987 trillion yen.

However, the yen's rise was limited with speculation that Bank of Japan may intervene any time to soften the Japanese currency. Hiroshi Watanabe, head of the Finance Ministry's international bureau, said that Japan would not tolerate a rise in the yen stemming from overseas buying of Japanese stocks.

Moreover, Finance Minister Masajuro Shiokawa fired out warnings saying that the yen is still too strong. He also repeated his usual line that the fundamental weakness of the Japanese economy was unchanged.

Range for the week: 115.00 -120.00


Sterling

Sterling started the week trading around 1.6475 level against the dollar as soaring stock markets prompted investors to reverse recent safe haven trades in European government bonds.

Nervousness that Bank of England may reduce its interest rate when they would meet later in the week, also weighed on the pound. The possibility of an interest rate cut was raised after Bank of England Governor Mervyn King said that the recent rebound in the sterling's value could hit already sluggish economic growth in Britain.

Moreover, data showed sluggish British exports to the euro zone that reinforced concerns about possible interest rate cut in UK. Exports to the European Union fell 2.6 pct to 8.3 billion pounds in May, the lowest since June 1999.

Bank of England trimmed its interest rates by 25 basis points to 48-year low of 3.5 pct. The pound fell sharply after the move as it lowered the pound's interest rate yield attraction.

Next week, market will keep a close eye on producer price data, consumer prices and labour market data in U.K.

Range for the week: $ 1.6000 - $ 1.6500.