Dollar continues to rally (page 2 of 2)

U.S lawmakers and manufacturers complain the Chinese currency's link to the dollar keeps prices for Chinese goods low and hurts U.S manufacturers. The Bush administration is under pressure from congress to show progress in moving China toward a flexible currency to rein in the U.S trade deficit with the Asian giant, which hit $162 billion last year.

Speculation about the revaluation of the yuan continued in the background, with a stronger Chinese currency seen leading to rises in other Asian Currencies. Chinese central bank governor Zhou Xiaochuan said on Friday that reform of the yuan would be driven mainly by domestic factors but China would listen to views in the process.

Japanese Finance Minster Sadakazu Tanigaki warned that authorities would act if the foreign exchange market turned volatile due to speculation over China's currency policy. Japanese economic growth and current account figures are both due early next week.

Range for this week: Y105.80-Y108.80

Sterling

Sterling started the week under pressure against the dollar as evidence piled up of a slowing British economy.

News of a sharp fall in British manufacturing output fuelled speculation that the next move in Bank of England interest rates could be down. Manufacturing production fell by 1.6 percent in March, confounding market analysts who had predicted a modest rise.

The dollar continued its upbeat movement against the sterling after a report showed British retail sales falling at a record annual pace in April, adding to evidence of a slowing UK economy.

British retail sales fell 4.7 percent on a like-for-like basis in April, the biggest annual fall since it began compiling records a decade ago. Furthermore, sterling came under additional pressure after the Bank of England said in its May inflation report that it cut its forecast for growth because of a slowdown in consumer spending.

Next week financial markets would look to UK inflation data and minutes for the Bank of England's latest policy meeting for clues on the outlook for interest rates.

Range for this week: $1.8360-$1.8660