US dollar reverses its advance

Euro

The dollar rallied against the euro, energised by robust U.S. economic numbers reinforcing hopes that the U.S. recovery is on a more solid foundation. U.S. retails sales climbed 1.8 percent in March, easily topping economists' forecasts of a rise of 0.6 percent.

In addition, February U.S. business inventories rose 0.7 percent, higher than expectations and signalling stronger-than expected economic growth.

After a surprisingly strong U.S. employment report at the start of this month, investors have been scrutinising U.S. data for clues the economy is strong enough to warrant higher interest rates, which is lending additional support to the dollar's recent recovery.

The dollar continued to motor ahead after news that U.S. consumer prices rose more than expected, adding to expectations that the Federal Reserve will raise interest rates sooner rather than later. The U.S. trade deficit, which has been one of the biggest weights on the dollar, also narrowed more than expected in February, further helping the greenback.

The consumer Price index rose 0.5 percent in March, exceeding economists' forecasts of a 0.3 percent increase. The U.S. trade deficit narrowed in February to $42.1 billion, slightly below analysts' expectations of a $42.5 billion gap. Shortly after the release of the data, the euro tumbled to a low of $1.1863 levels.

However, the last trading session witnessed the greenback reverse its gains as investors took profits on the currency's recent advance, following the release of fairly disappointing batch of U.S. economic data.

Analysts said market expectations of near-term monetary tightening, which had pushed the dollar to multi-month highs against the euro earlier this week, were now ebbing.

The University of Michigan preliminary consumer sentiment index for April came in at 93.2, below forecasts for 96.5 and March's final reading of 95.8. U.S. industrial production fell unexpectedly in March and capacity utilisation eased slightly.

The euro was up trading close to $1.1990 levels and well above the four and a half-month lows hit earlier in the week. The dollar shed its gains against the euro after a Federal Reserve official cast a note of caution about the possibility of an interest rate increase in the near term.

Richmond Federal Reserve President Alfred Broaddus said he thought the Fed is some distance from seeing conditions for a rate hike. Broaddus added that he was not 'unduly concerned' about the risk of a near-term inflation surge, adding that he still saw 'considerable' slack in the U.S. economy.

In the coming week, market focus will be inclined towards the meeting of the Group of Seven countries in Washington to see whether currency policy would be discussed. U.S.Fed Chief Alan Greenspan also takes the stand next week in a testimony to the Congress, which is sure to grab the spotlight as speculation mounts that a spell of ultralow borrowing costs is nearing an end.

Interest rate outlook is also key in the eurozone,
with markets looking to confidence data in Germany, Italy and Belgium for signs that a
rate cut is likely soon.

Range for the week: $1.1700 - $1.2200.

Japanese Yen

The yen gained momentum at the onset of the week, helped by rising Tokyo stock prices. The yen's gain against the dollar was also aided by widening of Japan's current account surplus.

Thanks to the strong exports to China and other global markets, Japan's current account surplus in February was up 46.2 percent from a year earlier at 2.157 trillion yen ($20.3 billion), beating a median forecast of 2.0 trillion yen in a Reuters poll.

Midweek the dollar firmed against the yen, testing a peak of 109.20, its highest level since March 16 amid growing speculation of an early interest rate hike in the U.S. in the wake of strong economic data from the U.S.

However the dollar soon reversed its gains trading close to 107.90 levels before closing for the week, pushed lower by disappointing economic numbers from U.S and also due to stop-loss triggers below the 108 yen level.

Range for the week: 104.00 - 109.00

Sterling

Sterling fell to its lowest levels in almost four months against the dollar as robust U.S. data raised expectations the Fed would raise interest rates soon.

Sterling fell victim to the soaring dollar crashing to $1.7787 levels in a follow-through of selling of high- yield currencies this week. The pound got little help from upbeat UK manufacturing data that showed strong expansion in the first quarter.

However, the pound managed to regain its foothold as the greenback struggled to build on recent gains versus a broad range of currencies.

A busy schedule for U.K next week, with March inflation numbers due on Tuesday, followed by the release of the minutes from this month's Bank of England's meeting on Wednesday and retail sales and first quarter growth numbers on Friday.

Range for the week: $1.7600 - $1.8100.