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Meanwhile, gold seen as a hedge against inflation and economic uncertainty; cantered to a fresh 17-year high of $ 460.10 and looks set to rally further in the weeks ahead.
Euro
The euro commenced the week on the defensive after being pressured by concerns over the outcome of today's German elections, whilst the dollar remained well supported due to expectations of another yield-boosting US rate hike.
The single currency that ended the previous week above $ 1.2400; fell sharply at the onset of trading to settle around $1.2280, perilously close to major technical support at $ 1.2260.
With market attention shifting towards the upcoming US Federal Open Market Committee meeting next week, the release of key inflationary data during the week was likely to add direction to an otherwise sombre market lacking any direction.
First on the list - the August US producer price index, recorded a 0.6 pct rise, but the core index, which excludes volatile food and energy prices remained unchanged from July. However, the euro failed to capitalise as the release of a narrower-than-expected US trade deficit number for July, helped erase the build up of negative dollar sentiment.
Meanwhile, the release of US retail sales that dropped by 2.1 in August, was again treated with caution as a close look revealed that the drop was largely due to fluctuations in auto sales as the core number that excludes autos grew a healthy 1.0 pct.
The number added momentum to the greenback, as the euro slipped through key support levels to test a low of $ 1.2189.
As the week progressed, the US released its Consumer Price Index - showing a rise of 0.5 pct, against forecasts of 0.6 pct, but the core index which excludes volatile food and energy recorded only a 0.1 pct gain, slightly below forecasts of 0.2 pct.
The data failed to dent the dollar, as it remained firm drawing support from talk of further monetary tightening in the United States.
In other US data, the Philly Fed index of business sentiment dropped sharply to 2.2 against forecasts of 14.0, whilst the NY Fed's index on manufacturing activity came in line with expectations at 16.97.
As the week drew to a close the US recorded that its current account deficit grew in the second quarter of 2005 to $ 195.66 Billion, against expectations of $ 193 Billion, but the negative impact was again erased by a higher-than-expected flow of Capital in to the United States in July.
Net inflow of Capital into US securities stood at $ 87.4 Billion in July, much higher than the trade deficit of $ 57.9 for the same month.
The markets were also given an initial feel of how US consumers felt in the aftermath of Hurricane Katrina as the University of Michigan's consumer sentiment index dropped to 76.9, below forecasts for 85.0. The survey reflected responses gathered after Hurricane Katrina devastated parts of the US gulf coast.
Next week, the US Fed will hog the limelight as they meet to decide on monetary policy and is widely expected to raise the benchmark rate US Fed Funds rate by 25 basis points to 3.75 pct.
The statement that follows will receive close attention from market players on lookout for the Fed's assessment of the economic impact of Hurricane Katrina and the future of US interest rates.
Range for this week: $1.2100-$1.2400
Yen
The Japanese yen opened on an upbeat mood, as currency markets greeted Prime Minister Koizumi's win in the lower house of Parliament with a positive attitude as analysts said that Japan stood a greater chance of pushing forward with much needed political reforms.
HSBC
