Markets stay in established ranges (page 1 of 2)

Next week, market attention will fall on the Federal Reserve's policy setting meeting with analysts expecting key interest rates to remain unchanged; although the accompanying statement may have a huge impact if it signals a change of view on growth or deflation. Furthermore, the release of U.S. retail sales, trade, industrial production data and the University of Michigan consumer sentiment index will be also be scrutinised closely.

Euro

The dollar started the week on the back foot as weak U.S. economic data at the beginning of the month, dented hopes of a quick economic recovery in the United States.

Data at the beginning of the week did little to help the dollar due to declines in US equities, which saw the Nasdaq lose 2.37% and the Dow fall by 1.63%. The Institute for Supply Management's non-manufacturing index surged to 65.1 in July, posting its highest reading since the survey's inception in July 1997.

Driving the index higher was a jump in new orders, which surged to 66.9 from 57.5. The prices index dipped to 50.6 from 51.4. With not much data expected till the end of the week markets awaited the sale of U.S. treasury notes to determine the dollar's fate.

The U.S. Treasury Department offered three-year notes on Tuesday, five-year bonds on Wednesday and ten-year paper on Thursday. The current account deficit- the broadest measure of a nation's global trade- has swelled to record levels of around 5 percent of gross domestic product. Analysts' estimates show that the U.S. needs to attract at least $1.5 billion in foreign funds per day, to bridge the current account gap.

Dismal demand for the sale of $24 billion in three-year U.S. treasury notes also weighed against the dollar as it lost ground against most major currencies. However, the greenback recovered midway through the week following the auction of the five-year Treasury notes which fared much better than the auction of three-year notes.

The sale of about $18 billion in five-year bonds attracted bids for 2.48 times the amount on offer, the strongest since August 2000 auction that had a bid-to-cover of 3.06. The ratio was also higher than the 1.82 average of the previous four auctions. A breakdown of the data from the Treasury auction showed that indirect bidders, which are primarily made up of foreign central banks, purchased nearly a third of the total $18 billion in five-year notes.

The dollar remained firm against the Euro after the final leg of Treasuries auction came in line with expectations, increasing hopes for stability in the U.S. fixed-income market. The sale of $18 billion in 10-year notes came with a high yield of 4.37 percent and a bid-to-cover ratio of 2.00, an indication of strong demand, which was in line with the longer-term average of 2.01.

The bid-to-cover in the previous auction was 1.22. Furthermore, supporting the dollar was position squaring and data showing a rise in a gauge of U.S. economic activity. The Economic Cycle Research Institute, a private forecasting group, said its lending index rose to 128.0 in the week ended Aug.1 from a revised 127.1 the previous week.

Meanwhile, weak data released in the Euro zone kept the single currency under pressure. Italy's gross domestic product fell 0.1 percent in the second quarter according to preliminary data, showing that the Euro zone's third-largest economy suffered a technical recession in the first half of 2003.

Range for the week: $1.1000 - $1.1500

Yen

The Japanese currency traded well off its three-month low of $120.69 at the beginning of the week, as traders who had bought dollars on expectations of good jobs data, in the U.S., sold dollar's to square their positions.