US dollar takes a beating

Euro

The euro started the week trading within narrow ranges against the dollar as an influential German business confidence survey did little to alter the prognosis of a muted recovery in the euro zone's biggest economy. The Ifo business climate index tumbled slightly to 95.2 in September from 95.3 in August.

As the week advanced, the dollar lost ground against the euro after the Conference Board's U.S. consumer confidence index slipped to a lower than expected reading of 96.8 in September, against market's forecast for 99.0.

However, the U.S. unit hardly reacted to other string of U.S. economic data, which showed higher than expected readings. U.S. gross domestic product surged 3.3 pct in the second quarter with market's forecast for a rise of 3.0.

Meanwhile, Chicago PMI, a survey of business activity in the U.S. Midwest, rose to 61.3 in September versus market's anticipation for a reading of 57.5. Additionally, U.S. personal income for August increased by 0.4 pct, compared with economist's forecasts for a rise of 0.3 pct.

Close to the weekend, the single currency jumped sharply above $1.2400 levels as investors sold dollar on worries of any surprises on currency policy from this weekend's Group of Seven finance ministers meeting in Washington.

However, data showed stronger-than-expected expansion in the U.S. manufacturing sector in September took the shine off the euro's gains against the dollar. The Institute for Supply Management's manufacturing index slipped to 58.5 in September from 59.0 in August, but it was above expectations for a drop to 58.0.

Meanwhile, the dollar barely reacted to news that the University of Michigan's consumer sentiment survey showed a surprise dip in September, suggesting Americans are uncertain about the economic outlook and the job market. The index of consumer confidence fell to 94.2 in September from 95.9 in August.

In the week ahead, main market's focus will be on the September's U.S. non-farm payrolls, with markets forecast for 155,000 new jobs created.

In addition, market will keep a close eye on speech by U.S. Federal Reserve Chairman Alan Greenspan for further clues on the path of future interest rates hike. Meanwhile, in Europe, European Central Bank's meeting will be closely watched next week.

Range for the week: $1.2250 - $1.2550

Japanese Yen

At the beginning of the week, the yen tumbled to a six-month low against the dollar as oil prices hit new record highs, underlining concerns about Japan's complete dependence on imported oil.

U.S. crude oil touched a new record of $50.01 a barrel as worries about supply compounded concerns over low fuel stocks ahead of peak winter demand.

In addition to rising oil prices, the yen was also under pressure from sagging Japanese stock prices and jitters ahead of the release of the Bank of Japan's 'tankan' survey of business sentiment later in the week.

As the week progressed, the yen trimmed its earlier losses after oil prices fell more than 2 pct to a low of $48.40 on news of a cease-fire agreement between rebels and the government in Nigeria.

A slightly smaller-than-expected rise in Japanese industrial output in August also supported the yen briefly. Industrial production rose 0.3 pct from the previous month with market's expectation of a 0.5 pct gain.

A pledge by China's Premier, Wen Jiabao, to push ahead with making the Chinese currency more flexible had an impact in foreign exchange markets.

The dollar might weaken against Asian currencies, in particular against the yen if the Group of Seven richest nations go into greater details with China about plans for the yuan currency, when they meet at the end of the week in Washington.

The yen rallied marginally on the last trading day after the release of upbeat 'tankan' survey of business sentiment. The key diffusion index of the closely watched Bank of Japan survey came in at plus 26, the strongest since May 1991 and higher than market forecasts for a reading of plus 23.

Range for the week: 109.00 - 112.00

Sterling

Sterling held steady at the start of the week as the market waits to see if forthcoming U.K. economic data would confirm a slowdown in Britain's housing market.

Later in the week, the pound surged against the dollar and the euro helped by robust U.K. business investment data. The Office for National Statistics said business investment gained 2.6 pct, much more than the 0.5 pct originally estimated and biggest rally in a year.

However, the sterling reversed its early gains and fell sharply after Bank of England Monetary Policy Committee member Kate Barker stated that the central bank could be nearly done with raising interest rates for now as recent data, specifically on the housing market, have been weak.

The Bank of England has raised its interest rates five times since last November, taking U.K. rates to 4.75 pct. The comments followed British economic data that showed mortgage lending in August rising at its slowest pace in a year while the number of new home loans fell to its lowest level in nearly four years.

Moreover, British retail sales dropped unexpectedly in September to give their weakest performance in one and a half years due to high interest rates and steep oil costs took their tool.

Weak British manufacturing data also cemented market expectations for further interest rates hike. U.K. Manufacturing survey recorded an unexpected fall in September to 52.2 from 52.8 in August.

Week ahead, market will keep a close eye on the Bank of England's meeting amid speculation that British interest rates are reached its peak, and it is widely tipped to leave the rates unchanged at 4.75 pct.

Range for the week: $1.7800- 1.8100