Inflation, oil prices worry traders (page 2 of 2)

recovery will be sustained. An index of area business by the National Association of Purchasing Management-Chicago advanced to 68 this month from 63.9 in April.

May is the 13th month of expansion, reflected by readings above 50. April consumer spending rose and incomes had the biggest gain in five months, separate reports showed

Range for the week: $1.2000 - $1.2500.

Japanese Yen

Japanese yen also moved higher on the back of weak US dollar and rising Nikkei but persistently high oil prices weighed on Tokyo stocks and capped it move higher.

Market showed little reaction to a rise in Japan's trade surplus, which was up 30.3 percent in April from a year earlier at 1.0791 trillion yen, roughly in line with market consensus forecast of 1 trillion yen. Japanese retail sales fell 0.8 percent in April compared with a year earlier against a forecast of 0.2 percent drop.

By the end of the week, the Nikkei 225 added a healthy 1.3 per cent overnight, cementing its best week for the month. Nikkei, and yen, strength was attributable to data showing Japanese industrial production rose by a seasonally adjusted 3.3 per cent in the year to April.

Unadjusted the rate was 8.5 per cent. Household spending by salaried workers rebounded by 9.3 per cent in real terms on an adjusted basis. The recovery of the equity market is attributable to renewed confidence that the Japanese economy is becoming well established on a recovery path.

Range for the week: 108.00 - 113.00

Sterling

Sterling was the major mover for the week as it moved six big figures on the back of strong economic performance and the prospects of higher interest rates.

Many analysts now expect the next hike to come in June or July rather than August. Throughout the week sterling extended gains versus the greenback as persistently high oil prices and soft US data dragged the US unit lower against most of the major currencies.

British economy grew an unrevised 0.6 percent in the first quarter of this year, slightly below consensus expectations. A strong rise in household spending meant the figures did little to dampen expectations of several more UK rate rise this year.

By the end of the week, sterling's rally was hit by a speed bump after US manufacturing data allowed greenback to recover its footing after a weeklong slide.

Range for the week: $1.8000 - $1.8500