Mixed US economic data

Euro
The European single currency started the week, extending its gains made against the dollar on continued worries about the U.S. economy and its yawning trade deficit. Meanwhile, a rise in the key Ifo business climate index for Germany also boosted the euro.

The Ifo index unexpectedly edged up to 95.3 in October, the first gain in three months. Furthermore, an address by European Central Bank President Jean-Claude Trichet also helped underpin the euro. In his annual report to the European Union Parliament, Trichet did not speak directly on currencies. That contrasted with his comments in January, when he called the euro's surge 'brutal'.

As the week progressed the euro fell from its eight-month high of $1.2841 after German Chancellor Gerhard Schroeder said he had discussed the 'worrying' euro / dollar exchange rate relationship with French President Jacques Chirac. Furthermore, the euro was also hurt after the European Commission said the balance of economic risks for the coming two years had shifted to the downside and that further sharp euro gains, which could put the brakes on exports, would make matters worse.

Markets have shown interest in remarks by European policymakers for their views on the euro's rise. There has been an uptake in verbal intervention over the pace of the euro's climb. The market had latched onto the idea Europe was comfortable with the rise, however, recent comments suggested otherwise.

U.S. consumer confidence data also provided some respite for the dollar, as it showed sentiment declined in October, however, by a lesser margin than some had expected. In addition, sharp falls in oil prices eased some concerns about the U.S. economy. Meanwhile, U.S. orders for long-lasting durable goods rose by a smaller-than-expected 0.2 percent in September.

As the week was coming to an end, euro got a brief push higher after euro zone data showed inflation in the 12 nation region surged to 2.5 percent in October, above the European Central Bank's goal, due to soaring oil prices. Mixed U.S. economic data failed to inspire much buying interest ahead of next week's U.S. presidential election.

U.S real gross domestic product rose 3.7 percent in July through September quarter, at a faster pace than the 3.3 percent registered in the prior three-month period but well short of the 4.2 percent clip forecast by economists. However, Chicago purchasing managers index rose to a five-month high of 68.5 in October from 61.9 in September.

Last week's ranges: $1.2628 - 1.2841
Range for this week: $1.2600 - 1.2900

Japanese Yen
The yen kicked off the week on a strong footing against the dollar on concerns over the health of the U.S. economy, in addition to uncertainty over the U.S. presidential election. Financial markets expecting that possible victory of Sen. Kerry over U.S. President George W. Bush would be a signal to sell the dollar since his administration would likely be less tolerant about any Japanese intervention to stem the yen's rise.

Furthermore, Japanese officials have shown less concern about a stronger yen than last year. Japanese Finance Minister Sadakazu Tanigaki said current foreign exchange moves reflected the dollar's weakness, not the yen's strength.

As the week progressed yen came under mild pressure after a strong mid-morning earthquake jolted Niigata prefecture in northern Japan, the same region where a major quake killed at least 31 people and injured more than 3,400 some days ago. The yen came under added pressure after data showed industrial production in Japan fell 0.7 percent in September, worse than market expectations for a gain of 0.5 percent.

At the end of the week yen pushed to a six month high of 105.70 against the dollar as Japanese authorities appeared reluctant to step into the market despite the yen's decline. Japan's Ministry of Finance said it did not intervene in the foreign exchange market in October despite the yen's rise. Furthermore, Bank of Japan Governor Toshihiko Fukui said recent currency moves were not a risk to the economy.

Meanwhile, yen found added support after data showed Japan's seasonally adjusted unemployment rate fell to 4.6 percent in September from 4.8 in August. Other government data showed average spending by Japanese wage earner households, a key gauge of personal consumption, was up a real 0.3 percent in September from the same month last year.

The Bank of Japan forecast in a report showed that the core consumer price index (CPI), a key benchmark for monetary policy, would rise slightly in the 2005/06 fiscal year starting in April. The report has been keenly awaited by financial markets for clues on when the central bank will end its 'quantitative easing' policy.

Last week's ranges: 105.70 - 107.38
Range for this week: 104.50 - 107.50

Sterling
Sterling started the week hitting two months high against the dollar, however, its gains were capped after Bank of England Monetary Policy Committee member Richard Lambert reinforced expectations that UK interest rates will remain on hold for the year.

However, luck soon changed for sterling as it lost some of its gains after a survey by property research company Hometrack offered the latest evidence that the UK housing market is rapidly losing steam, showing prices falling at their fastest pace in three years. Sterling came under added pressure after data showed British manufacturer's confidence faltering and raised expectations of a respite in the Bank of England's rate-tightening cycle.

The Confederation of British Industry's quarterly industrial trends survey balance slipped to -10 in the three months to October from +7 in the three months to July, hitting its lowest reading since the middle of last year. The data was in line with other recent data, which showed ongoing softness in the UK economy.

Last week's ranges: $1.8191 - 1.8449
Range for this week: $1.8100 - 1.8500