US dollars stays under pressure

Euro

The European Single Currency jumped to $1.2535, its highest level in seven months at the start of the week after U.S. capital flow data suggested that foreign demand for U.S. assets could be slowing.

The U.S. Treasury said a net $59.0 billion flowed into U.S. asset markets in August compared with a downwardly-revised $63.1 billion in July. The dollar also was undermined as soaring oil prices painted a bleak picture over the United States' growth outlook.

Oil prices gained above $55 per barrel at the beginning of the week as fears of a winter supply crunch propelled heating oil prices to record peaks.

U.S. Federal Reserve's Chairman Alan Greenspan stated in a speech on consumer debt and the mortgage market that household debt was in 'reasonably good shape'. His comments had no major impact on the financial market.

As the week progressed, concerns over the U.S. economic outlook, with a record trade deficit and waning capital inflows, continued to hurt the dollar. However, better-than-expected U.S. economic data failed to give the greenback much support.

The U.S. consumer price index rose by 0.2 pct in September from the previous month. Meanwhile, the Philadelphia Federal Reserve's business activity surged to 28.5 in October from 13.4 in September, with market's forecast for an increase to 17.0.

In addition to that, remarks from European and American officials gave another beat to the U.S. unit. San Francisco Fed President Janet Yellen stated that the dollar is still 'relatively high despite our large and growing trade deficit.

Meanwhile, euro zone finance ministers and European Central Bank officials mentioned that euro's strength poses no problem at all.

Next week, stream of U.S. economic data will be closely watched for further clue on the outlook of the U.S. economy, such as Consumer Confidence, third-quarter GDP, durable goods and Midwest manufacturing activity.

Range for the week: $1.2500-$1.2800

Japanese Yen

The yen started the week on a firm note against the dollar amid worries over the outlook of the U.S. economy. However, high oil prices, which traded above $55 a barrel, limited the yen's rally. Japan is vulnerable to high crude oil costs because it imports all of its oil.

As the week advanced, the yen extended its rally after senior U.S. Treasury official said that China should move to a flexible exchange rate 'as quickly as possible'.

Speculations in the market that China will revalue its currency are expected to have positive effect on other Asian currencies such as the yen.

Meanwhile, the yen hardly reacted to a smaller than expected trade surplus for Japan, which rose 12.7 pct to 1.238 trillion in September, with market's expectations of a rise of 28.3 percent.

Close to the weekend, Japanese authorities began to make warning noises as the USD/JPY tumbled below 107.50 level. Japanese Finance Minister Sadakazu Tanigaki said that his ministry would take any necessary action if the yen's value deviated from economic fundamentals.

Range for the week: 106.00-109.00

Sterling

The sterling stumbled against the dollar at the start of the week on much weaker than expected UK house data.

British house prices fell at their steepest pace in 9 years according to a report from the Royal Institution of Chartered Surveyors, which showed its housing balance dropped to -30 in third quarter from -12 in the previous quarter.

Slowing down in housing market indicated that the Bank of England (BoE) may not need to raise its interest rates further. Later in the week, minutes from the latest BoE Monetary policy Committee meeting showed a unanimous vote for unchanged interest rates in October and encouraged the view that rates will stay on hold for this year.

British interest rates currently is at 4.75 pct. Close to the weekend, the pound pared its losses and hit two-month highs against the dollar, amid concerns about the outlook of the U.S. economy and after retail sales data lifted some of the recent gloom over the UK economic outlook.

British Retail Sales rose 1.0 pct in September, its highest monthly rise since January, against forecasts for a 0.2 pct rally and from an upwardly revised 0.7 pct gain in August.

Range for the week: $1.8100-1.8400