US dollar consolidates its gains (page 1 of 2)

Euro

The euro was forced to deal with a spate of problems associated with its political objectives as Germany called for early elections, whilst the French will be at the polls this weekend to vote on a referendum on the EU constitution.

The dollar scored heavily as it climbed to fresh seven-month highs against the euro, Sterling and Swiss franc whilst yuan revaluation related talk kept the yen from losing further. The French vote is likely to be in focus whilst the release of key economic data from all major nations could see nerve-wracking moves in the week ahead.

The euro opened its account on a weak note after being battered all of the previous week following upbeat US economic data that signalled rapid growth in the United States and gave rise to hopes of an end to the recent decline in the US dollar.

News of a possible rejection of the European Union constitution by the French at the referendum also cast a shadow on the euro's recovery prospects as the currency traded close to levels last seen seven months back.

And the news of a crushing defeat for Germany's ruling Social Democrats in a regional poll that forced Chancellor Gerhard Schroeder to call for early federal elections also dealt a crucial blow to the 12-nation single currency.

Meanwhile, the release of the minutes of the last US FOMC meeting that received attention from all quarters proved to be a non-event as the Fed was seen to be cautious with its wording indicating that future interest rate rises would be in line with economic growth.

The minutes also showed that some members had expressed concerns of a slowdown, whilst others had zeroed in on an "upcreep" in inflation signifying an imminent pause in the Fed's cycle of monetary tightening. The dollar retained a softer tone following the release of the Fed's minutes, but was still within sight of highs of $ 1.2535 - seen at the start of the week.

As the week progressed, the euro's woes intensified as the key German Ifo business sentiment survey returned its lowest reading since August 2003, and recorded its seventh consecutive dip. The Ifo index came in at 92.9 for May, offering little hope of a pickup in Europe's largest economy.

US durable goods orders that rose 1.9 pct, but showed a surprising drop of 0.2 pct excluding the transportation sector failed to add direction to the market, that was content with trading within a well defined range - between $ 1.2530 and $ 1.2630.

The release of first quarter US GDP that grew 3.5 pct, also failed in its bid to break the range as traders looked ahead to the French referendum and key technical levels for further direction. As the week drew to a close, the euro succumbed to the pressure inserted by dollar bulls and fell to $ 1.2492, although it recovered swiftly as traders readjusted their positions ahead of the weekend vote.

A dip in the University of Michigan's consumer sentiment index in May that fell to 86.9, and a smaller-than-expected rise in US consumer spending failed to excite markets as traders on both sides of the Atlantic prepared for the long weekend and the referendum in France.

London and New York will be closed on Monday for a special bank holiday and a Memorial Day respectively but all eyes are likely to be on the French vote today, as a rejection would cause political jitters that could turn sour and pile further pressure on the single currency.

On the data calendar, the release of US consumer confidence, ISM manufacturing and non-manufacturing indexes and the all-important non-farm payrolls are likely to grab the headlines through next week.

Range for this week: $1.2460-$1.2760

Yen

The Japanese yen commenced the week on a softer tone, as Tokyo continued the previous weeks' dollar rally pushing the yen lower to 108.30 per dollar in early trading.