Expect higher British interest rate (page 2 of 2)

A rise in rate would be widely viewed by analysts as a bullish prospect for the dollar since it would increase the allure of dollar-denominated assets for foreign investors.

Range for the week: $1.1950 - $1.2450.


Japanese Yen
31st March is the fiscal year end for Japan and traditionally during this week dollar/yen trades lower due to funds repatriation for the year end book closing. Reports that Japan had ended its campaign to weaken its currency pushed the dollar lower in the beginning of the week.

The article, which quoted a Bank of Japan official and not the Finance Ministry which directs intervention, said that Japanese officials think that intervention is no longer necessary because the country's economic recovery is gathering strength.

Soon after the report, a senior official at the ministry reiterated that Tokyo would continue to intervene if needed and if market rates strayed from fundamentals. Recent raft of positive data on Japan's economy was helping fuel a rally in Japanese shares and increasing demand for the yen.

Currency market tested BoJ's resolve and drove dollar/yen below the key psychological barriers of 105.00 level (its lowest level in nearly four years), before it stalled on suspicions that the Bank of Japan was buying dollar to support their currency. Comments from Japan's Finance Minister Sadakazu Tanigaki that Japan had grown resilient to the stronger yen gave the currency another boost, lifting it to 103.45 to a dollar.

The closely watched quarterly "tankan" survey by the Bank of Japan showed that more Japanese firms felt they were doing better in March than at any time in nearly seven years. The main diffusion index for big manufacturers came in at plus 12, the highest since June 1997 and the fourth straight quarter on improvement.

Among the upbeat figures in the tankan poll, many currency traders were struck by the average dollar/yen rate that Japanese companies expected for the new financial year. Large manufacturers forecast an average dollar rate of 108.43 yen in fiscal 2004/2005, versus the current level around 104.40. Analysts said that given recent yen strength most companies must have revised down the level and were concerned how it affected their earning outlook. Many analysts said that Japanese companies are capable of enduring a strong yen.

After the start of the new financial year it was business as usual with Japanese investors buying fresh foreign assets and thus driving the yen lower from its new 4-year high. Nevertheless, against a backdrop of an improving economy, large foreign buying of Japanese stocks, and an apparent scaling back of intervention by the Bank of Japan, analysts said it was only a matter of time before the Japanese currency resumed its climb. Japanese officials were upbeat about the country's economic recovery but denied speculation that the improvement had led to a change in their policy of resisting a rise in the yen.

Range for the week: 102.00 - 107.00


Sterling
Sterling traded with a firm footing as robust consumer credit and record mortgage lending data bolstered expectations for higher British interest rate. British mortgage lending rate rose to a record 14.5 percent year-on-year in February, suggesting Britons' appetite for debt had not been diminished by the last two Bank of England interest rate hikes.

However, Bank of England MPC member Stephen Nickell said that higher debt levels were natural given the strength of house prices. Housing data from the Nationwide building society said house prices rose 1.4- percent in March.

As the week progressed sterling moved higher on the back of weak US economic data and ECB's decision to hold euro interest rates steady, taking it to a new high of 1.8604, its highest level since early March. By the close of the week, sterling lost some of its shine due to robust US payroll numbers. The financial market will look forward to next week's Bank of England interest rate meeting; though economists predicted it would hold borrowing costs steady for the time being and gauge the situation.

Range for the week: $1.8000 - $1.8500