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Euro
Easter turned out to be sour for the 12-nation single currency as it came under pressure at the start of the week following renewed optimism over US growth prospects and wide-spread belief of aggressive rate hikes by the US Federal Reserve - in it's bid to maintain price stability.
As the tug-of-war between the two currencies continued, the euro looked increasingly vulnerable as market players continued to focus on the potential for higher US interest rates. The release of a lower-than-expected consumer confidence reading failed to dent the dollar's stride as trading remained subdued in the run up to key data releases.
The Conference Board, a private business group, said that its' gauge of US consumer sentiment eased to 102.4 in March from an upwardly revised 104.4 in February.
However, the final reading of the US fourth quarter GDP, which recorded a lower than expected 3.8 pct against forecasts of 4.0 pct, took some shine off the greenback as a profit-driven sell-off allowed the euro some respite, taking it close to $ 1.3000 levels.
As the week progressed, interest rate differentials dominated trading patterns as markets focussed on the Fed's favourite gauge of inflation - the core PCE index. The index, which strips out volatile food and energy prices, rose 0.2 pct in February, in line with expectations and slightly lower than a 0.3 pct gain, in January.
The release of a stronger-than-expected Chicago Purchasing Manager's index, which rose to 69.2 in March, recording its highest level since 1988 added fresh support to the dollar. The numbers put to rest immediate worries of inflation, although markets remained cautious ahead of the weekend release of the all-important US jobs report.
The single currency fetched $1.3000, as thin trading conditions forced currencies into pre-defined ranges. The deadlock finally came to an end, as the US labour department reported that only 110,000 jobs were added to the economy in March, well below expectations of a number of 220,000 and a revised 243,000 in February.
The data triggered an immediate rally in the single currency, which zoomed higher to $ 1.3070 helped by the weak US number. However, the euro's joy proved to short-lived, as the release of upbeat US ISM manufacturing and non-manufacturing indices brought the dollar bulls back in to the fray.
The resultant move not only helped the dollar regain all its losses but also pushed the euro to below $1.2900. Comments by Chicago Fed President Michael Moskow who said that the Fed was concerned about inflation also supported the dollar's fortunes.
Currency markets are likely to remain range bound in the coming week, as a lack of key data could have a detrimental impact on liquidity. Speeches by Fed Chairman Greenspan and comments from policy makers will receive attention, as the dollar looks for a consolidation of its footing. The ECB will also hold its bi-weekly policy meeting, but interest rates are likely to be kept unchanged at 2.0%.
Range for this week: $1.2800-$1.3100
Yen
The yen struggled for direction at the start of the week, as the dollar held the trump card in the form of expectations of higher interest rates and continued to advance in thin trading conditions due to the extended Easter weekend.
HSBC
