Dollar slumps as traders get jittery (page 2 of 2)

The Nikkei share price average pushed higher in the wake of surprisingly strong Japanese industrial output data.

Although output attracted the most attention, in fact consumption, which accounts for about 55 percent of Japan's gross domestic product, still looked weak, with unseasonably cold weather over the last two months not helping.

Japanese retail sales fell for the 28th straight month in July, dropping a preliminary 3.0 percent from a year earlier. Ahead of the weekend yen pushed higher against the dollar mainly due to surprising news that the Bank of Japan had not intervened to weaken the Japanese currency during the month of August.

Optimism over Japan's economic recovery also supported the yen's rise. Data showed Japan's industrial sector grew by 0.5 percent in July, well above what analysts had expected.

Range for the week: 115.00 - 120.00

Sterling

Sterling started the week on a soft note and tended to followed the euro lower against the dollar as London markets were closed for a holiday.

The Hutton inquiry into the death of Iraqi weapons expert David Kelly was seen as an added negative for the sterling, with Defence Secretary Geoff Hoon due to be questioned on Wednesday and Prime Minister Tony Blair on Thursday.

Sterling came under additional pressure after the Research Company Martin Hamblin Gfk said its consumer confidence barometer fell to -3 in August from -1 in July. Analyst had expected to see a rise to zero.

As the week advanced sterling managed to gain back some of its losses against the dollar after Prime Minister Tony Blair's testimony in an inquiry into the death of a weapons expert went off better than some expected, while predictions of higher UK interest rates also got a boost.

The Bank of England Monetary Policy Committee member Paul Tucker warned debt-laden British consumers interest rates would not stay low forever, which support sterling's yield advantage over other currencies.

Interest rate expectations have been a key driver of sterling sentiment throughout the year thus far as investors weighed the relative benefits of Britain's higher interest rate returns over the euro zone.

Next week the UK's Monetary Policy Committee is also widely expected to keep interest rates stable on Thursday at a 48-year low of 3.5 percent.

Range for the week: $1.5500 - 1.6000