US dollar at three-year low

Euro

At the beginning of the week the euro reversed losses it had made in the wake of last weeks U.S. jobs data as speculation grew that U.S. and
European authorities would let the greenback weaken to narrow the U.S. current account deficit.

Particularly aiding the euro were statements from ECB President. Outgoing European Central Bank President Wim Duisenberg's said in a newspaper article, that a weaker dollar was unavoidable and that the central bank was unlikely to sell euro's in order to halt its rise.

Also, U.S. President George W. Bush's remarks about currency policies that offered 'a level playing field' for U.S. companies, fuelled views that the greenback was in for a long slide.

With U.S. Treasury Secretary John Snow expected to appear in a Senate hearing on global foreign exchange policies next week and a meeting of Asia-Pacific Economic Co-operation in Bangkok later this month also offering a stage for Bush to put pressure on Asian nations on currencies, traders noted any rebound in the dollar would be limited.

Midway through the week the U.S. currency continued its downward trend, falling near-four-month low of $1.1860 against the Euro. Fuelling
the fire were additional comments from Dutch, Belgian and Austrian finance ministers. They gave the impression that euro zone policymakers
were unlikely to oppose the dollar's fall against the euro at this stage, saying the euro's rate was not a concern for the euro zone for now.

The White House did try to clarify its policy by saying it still supported a strong dollar despite comments by both European and U.S. officials.
A surprise drop in the latest U.S. jobless claims numbers gave a much needed breather to the dollar after its broad based decline over the last
few days.

The weekly jobless claims fell to an eight-month low of 382,000 last week from an upwardly revised 405,000 the week before. The dollar also drew some strength from U.S. Treasury Secretary John Snow's adamant defence of the U.S. strong dollar policy.

Data released at the end of the week indicated the U.S. trade deficit narrowed in August to $ 39.2 billion, down from a revised tally of $ 40 billion in July. Furthermore, September U.S. producer price index rose at a faster-than-expected pace of 0.3 percent, compared with a rise of 0.4 percent in August.

U.S. data next week was expected to dominate currency markets, as it would shed light on the sustainability of an economic rebound. Highlight
of the week will be the U.S. retail sales data, which is expected to dip slightly and University of Michigan's preliminary consumer sentiment
report for October, which is expected to rise.

In Europe, the highlight of the week will be German ZEW index.

Range for the week: $1.1500 - $1.2000

Japanese Yen

The Japanese currency started the week lower against the U.S. dollar after surprising strong U.S. jobs data prompted traders to revise their
overwhelmingly bearish sentiment on the greenback.

Still there was a view that Japanese officials would not be able to change the dollar's trend single handedly, given what appeared to be a laissez-faire policy among U.S. and European authorities on a weaker dollar.

A Ministry of Finance data released at the beginning of the week indicated that Japan's foreign reserves rose to $604.873 billion at the end of September from $555.088 billion at the end of August, a result of the ministry's huge intervention during the month.

As the week progressed the dollar tumbled below three year lows of 109 yen as speculation intensified that U.S. and European authorities were prepared to see a weaker greenback.

Markets were on high alert due to intervention fears as Japan's top financial diplomat, Zembei Mizoguchi,said the decline in the dollar was caused by speculative movements and warned that Tokyo would take action if needed.

He further stated that the U.S. economy was now stronger than its European and Japanese counterparts and the dollar should therefore correct its recent rapid decline. However, he declined to comment on the suspected Japanese intervention in New York at the beginning of the week, which traders noted was the only factor supporting the USD/JPY pair.

Separate MOF data showed that Japan's current account surplus widened by 33.6 percent in August from a year earlier, with the trade surplus growing by 20.3 percent.

However, most economists noted that the fallout from the yen's strength would probably start affecting Japan's trade in the coming months, given the dollar had actually begun its decline at the start of the year.

By the end of the week the dollar fell to a new three-year low of 108.28 against the Japanese yen after markets perceived that the latest Bank of Japan monetary easing as a pro-growth measure that could spur the world's second-largest economy.

The Japanese central bank unexpectedly raised the upper end of its target for banking system liquidity and made its money market operations more flexible.

Range for the week: 107.00 -112.00

Sterling

Sterling started the week on a high note against the dollar as a raft of minor surveys gave further evidence that Britain's economy is moving in the right direction.

The Confederation of British Industry said confidence among UK financial services companies improved more in the last three months than at any time in the last four years. Motor Manufacturers and Traders said new car sales in Britain recorded the second highest September figure on record.

Midweek, Sterling reversed course as an unexpected fall in UK manufacturing output cooled down talk of a near-term rate hike in Britain.
Manufacturing output, which accounts for a fifth of the economy, contracted by 0.6 percent on the month, the worst performance since last October, to give an annual fall of 0.8 percent.

The decision by Bank of England to leave interest rates unchanged at 48-year lows of 3.5 percent disappointed some segments of the market that had bet on a small chance of a yield-boosting rise.

Further hurting the pound was data, which showed Britain suffered a widening in its goods trade deficit in August as exports to the rest of the European Union slumped to their lowest level since June 1999.

The highlight for sterling next week would be the UK jobs report, which will give clue whether the Bank of England is likely to raise interest rates
sooner rather than later.

Range for the week: $ 1.6400 - $ 1.6900.