US interest rates on the way up (page 2 of 2)

The release of healthy US Capital Inflow data which helped the dollar regain its footing, hurt the yen further as it got shoved towards 105 yen per dollar, before finding support from exporter sales of dollars ahead of the Japanese fiscal year-end.

As the week progressed, the Japanese yen was restricted to the 104-105 range as higher oil prices were viewed as an obstacle towards future economic growth in Japan. A decision by the Bank of Japan to keep monetary policy unchanged also went unnoticed as the currency remained dependent on developments in the United States and energy prices for direction.

Whilst a record US current account gap briefly saw the yen testing 103.91 per dollar, weekend trading halted all its gains and pushed it back to 105 although repatriation flows kept a check on further yen losses.

The release of Japanese inflation data will be the highlight of next week, but the yen's fortunes are likely to lie with movements in the greenback and crude oil prices with support coming from repatriation related buying from investors and exporters.

Range for this week: Y102.50-Y105.50

Sterling

Sterling traded sideways during a week of fluctuating fortunes as uncertainty over the future of rate hikes in Britain and mixed economic data from across the Atlantic kept the currency within recent ranges.

With analysts increasing their bets on a rate hike in June, focus centred on the release of the UK budget, retail sales and jobs data for further clues on the direction of UK interest rates - now at 4.75 pct and amongst the highest of G7 nations.

The release of British jobs data, that showed a strong gain in wage growth, but a smaller than expected drop in unemployment had little impact, as the currency remained steady in the run up to the release of the UK budget.

Average British pay packets grew by 4.4 pct in the three months to January, higher than forecasts of 4.2pct growth, whilst the number of citizens claiming unemployment benefits dropped by 700, less than expectations of an estimated 5000.

Meanwhile, the release of the UK budget showing a Public Sector Net Borrowing of GBP 34.4 Billion was greeted with muted reaction, as the Pound rose against the dollar on the back of a record shortfall in the US current account.

The release of UK retail sales, which rose 0.2 pct as expected, was largely ignored as Sterling came under renewed pressure following a weekend revival in the US dollar. The release of the Bank of England's minutes of the last meeting will be the main focus of the coming week, as markets continue their hunt for further clues on the direction of British interest rates.

Range for this week: $1.9075-$1.9375