US dollar in a strong rally

Euro

The euro kicked off on a moderate note, after it received limited support from the previous week's weaker-than-expected US data, which took some shine off the greenback, that had continued to surge on the back of surprisingly strong employment data.

Concerns over a deteriorating security situation in Iraq and the imminent threat of a terrorist strike amid warnings and offers for a truce with Europe by Al Qaeda added to the dollar's mildly negative tone. As the week progressed, the European single currency caved in following a bright ray of hope about an impending rise in US interest rates triggered by comments from Fed Chairman Alan Greenspan.

The US Federal Reserve Chairman, testifying before the Senate Banking Committee stated that the threat of deflation was over in the United States, signalling that a rise in US rates was on the horizon.

His comments pushed the euro lower towards $1.1800, as investors braced themselves for a break of the key chart-level - thought to be a major pillar of support. However, the Fed Chairman in his testimony to the Congress' Joint Economic Committee, cooled off market expectations of an imminent rate hike, as he stated that he saw no broad inflation pressures.

Greenspan's comments gave no hint of any timing for a rate hike, but analysts said that higher rates could not be justified in an environment where inflation was not seen as a threat. His comments added some respite to the euro, as the currency was seen capitalising on the delay effect as it climbed back towards $ 1.1900.

The euro's rise was short-lived as the release of the Fed's 'Beige Book' showing an upbeat assessment of the economy and a revision to global economic growth by the International Monetary Fund showing the US leading with 4.6 pct growth in 2004, helped the dollar regain its upward momentum.

Meanwhile, the release of US durable goods orders data showing an impressive gain of 3.4 pct in March lifted the dollar further, as markets braced for this weekend's G7 meeting with caution, where currencies are likely to be less of an issue.

The release of US first quarter GDP, Consumer Confidence, Michigan Consumer sentiment index and the German Ifo index will take centre stage next week, while any clues on the timing of the next interest rate hike in the United States and Fed policy are likely to impact currency markets significantly.

Range for the week: $1.1660 - $1.2160.

Japanese Yen

The yen started off in line with it's rivals and received muted support from the previous week's US data setback, while the flow of fund flows into the Nikkei also helped underpin the yen.

Recent data in Japan has indicated that the economy is expanding - albeit at a moderate pace, and has attracted investors into the country's equity markets, which has been boosted due to healthy corporate and economic numbers.

BOJ Governor Toshihiko Fukui confirmed this view as he said that domestic demand was recovering and added that the policy makers would watch for a while and wait for consumer prices to rise before making a decision.

As the week progressed, the Japanese currency was confined to a tight range as market attention shifted to Fed Chairman Alan Greenspan's twin testimonies and a host of other data released in the United States.

The week ended on a negative note for the yen, as the dollar flexed it's muscles towards the end of the week supported by upbeat US economic data as it rallied above 109.00 levels and tested a high of 109.80.

Next week, market players will pay close attention to the release of Japanese consumer confidence, Industrial production, retail sales and unemployment whilst a meeting of the Bank of Japan to decide on monetary policy will also be focussed upon closely.

Range for the week: 105.00 - 110.00

Sterling

The British Pound commenced the week on a strong pedestal as it received a boost from data showing a further rise in British house prices and factory output prices, reinforcing expectations of higher UK rates in the near term.

The data helped the pound climb above $ 1.8100, as market players stepped on the gas in view of it's status as higher yielding currency.

However, the currency received a mild blow after surprisingly low inflation numbers in the UK combined with a 8-1 decision by the Bank of England's Monetary Policy Committee members to leave rates steady at the last meeting; fanned some doubt into the chances of an immediate rate hike.

The pound was also badly hit by a broad rally in the greenback, which derived support from expectations of higher US rates in the short-term following upbeat comments by the Fed Chairman Greenspan.

Sterling ended the week on a bearish note as investors started scaling back their bets on the timing of future rate hikes in UK, whilst a roaring greenback took its toll forcing it to test a four-month low of $ 1.7627.

The release of Gfk Consumer Confidence next week will dominate the data front, while any news indicating the timing of a move on UK interest rates is also likely to have an impact on Sterling.

Range for the week: $ 1.7500 - $1.8000