Concerns over the health of the US economy (page 2 of 2)

As the week progressed, the release of a wider-than-expected US trade deficit for November helped the yen notch up sizeable gains as the dollar retreated against all major currencies.

With market players focussing on the release of key US data, the yen continued to edge higher against the greenback and the euro in the wake of comments from Europe, suggesting that Asian currencies should take more of the weak dollar burden than Europe. Otmar Issing - the chief economist of the ECB, commenced the rhetoric, which was also repeated by the President of the ECB Jean-Claude Trichet, who called on China and other Asian economies to adopt flexible currency policies.

The release of a healthy set of US economic indicators towards the end of the week failed to dent the yen's climb higher as market players continued to bet on a higher yen - eventually pushing it to a 5-year high of 101.80 per dollar.

Last week's Range: 101.80 - 105.03
Against AED: 0.03497 - 0.03608

Range for this week: 101.50 - 104.50
Against AED: 0.03515 - 0.03619


Sterling
Sterling commenced the week on a softer note after coming under pressure in the previous week following comments by US Treasury John Snow who reiterated his government's commitment to a strong dollar policy. Data showing a drop in UK producer prices - by 0.4 pct in December pushed the pound lower; although growing expectations of a wider-than-expected US trade deficit helped it back on its feet.

Midweek, as markets witnessed a new record trade deficit in the United States, Sterling cantered higher following a broad sell-off in the greenback. In contrast, the trade gap in UK recorded a narrow 4.6 Billion pounds and supported the pound higher. As the week progressed, a surprise fall in UK manufacturing output added renewed pressure on the pound, whilst the decision by the Bank of England to keep interest rates unchanged also went unnoticed.

As the week drew to a close, Sterling suffered further losses as markets focussed their attention on the future of British interest rates with speculation of the next move being negative. UK inflation and jobs data for December due next week is likely to receive close attention as investors seek further clues on the direction of UK interest rates.

Last week's Range: $ 1.8632- $ 1.8940
Against AED: 6.8435 - 6.9567

Range for this week: $ 1.8550 - $ 1.8850
Against AED: 6.8134 - 6.9236