Jobs data knocks the US dollar down (page 2 of 2)

"It's not appropriate for the market to be volatile or to overshoot," he added.

Furthermore, uncertainty continued in the market over Tokyo's future policy on currency intervention after non-committal statements from U.S. Treasury Secretary John Snow on his visit to Japan.

Snow praised the government's reform programme but avoided any criticism of its currency policy by saying the U.S. welcomed economic growth anywhere. He also reiterated his belief that flexible exchange rates were best for the global economy.

Midway through the week the dollar fell below the critical 116 yen level after the White House reiterated that currency rates are best set by markets and intervention should be kept to a minimum. Market players viewed this clarification as a green light to buy the Japanese currency. The Japanese currency was further assisted by data pointing to economic recovery in Japan and capital inflow from Japanese assets.

A finance ministry survey released showed that Japanese companies had increased spending on plant and equipment by 6.4 percent in the April-June quarter from the same period a year earlier,
its first rise in seven quarters.

The survey also showed that business sentiment at large Japanese firms improved in July-September period. Capital flows data indicated overseas investors continued to pour funds into Japanese stocks, buying a net 326 billion-yen ($2.8 billion) in the last week of August.

As the dollar fell to a 3 ½ month low of 115.75 due to strong data, the Japanese authorities patience finally ran out and they then intervened heavily in the foreign exchange markets, pushing the dollar up by more than one yen. Sources said the Central bank was seen repeatedly buying the dollar above 116-yen.

Japan's top Financial diplomat, Zembei Mizoguchi, declined to comment on whether the Japanese authorities had intervened, saying only that the Government's foreign exchange policy was unchanged. Meanwhile, U.S. Treasury Secretary John Snow let out a series of warnings against the governments' heavy involvement in the currency market.

Range for the week: 115.00 - 120.00

Sterling

Sterling recovered against the dollar, at the start of the week, mainly due to its rise against the euro after a spate of buoyant British data increased prospects of an economic recovery in the country.

Data out showed a renewed surge in British house prices and a recovery in the construction and engineering sectors, reinforcing expectations the Bank of England would hold interest rates unchanged when it meets later in the week.

Midway through the weak, sterling was trading below the $1.5700 levels, hovering close to its weakest level since late April of $1.5616, mainly due the dollar's gains against other major currencies.

Economic data released showed Britain's dominant services sector growing at its fastest rate since January 2001 with the CIPS/Reuters services activity index at 57.0 in August, a fifth consecutive month of expansion.

However, the pound was not gaining much support from the figures mainly due to the fact that investors were keeping to the sidelines, eyeing an ongoing judicial inquiry into the death of government weapons expert David Kelly.

Sterling ended the week positively, pulling away from four-month lows against the dollar, after the Bank of England left interest rates unchanged at 3.5 percent, increasing expectations that Britain's rate cutting cycle may be over.

Further helping the pound was a weak monthly jobs report. This helped sterling to surge to a two week high, and news on the closure of the first phase of inquiry into David Kelly's death, which will reopen on September 15.

Range for the week: $1.5700 - 1.6200