Dollar at a three-month high (page 1 of 2)

Euro

At the start of the week, the dollar extended its rallies, striking a three-month high against the euro supported by expectations of more interest rate increases in U.S. Atlanta Fed President Jack Guynn said the Fed's credit tightening campaign still has "a ways to go" before completion.

Meanwhile, the Institute for Supply Management said its index of national factory activity rose to 59.4 in September from 53.6 in August, outstripping economist's median forecast for a drop to 52.0. A spike high in the ISM's price paid component in the data that fanned more concerns about inflation accelerating.

The European single currency was little moved after data showed eurozone-manufacturing business grew faster in September and that the sector is running into capacity constrains. The dollar continued its bullish tone against the euro as more Federal Reserve officials made clear the U.S. interest rates are heading higher.

Philadelphia Fed President Anthony Santomero said the Fed was somewhat more worried about inflation compared with a year ago. Dallas Fed President Richard Fisher said core consumer price inflation was running at the upper end of the Fed's tolerance zone and "show little inclination to go in the other direction".

Furthermore, August U.S. factory orders rose by a higher-than-expected 2.5 percent, recovering from a revised 2.5 percent decline in July.

As the week progressed, the dollar came under pressure after the Institute for Supply Management's (ISM) services index fell to 53.3 in September from 65.0 in August, well short of Wall Street's median forecast for a drop to 61.0.

In addition, recent news that Venezuela had reduced the amount of U.S. Treasury bonds in its international reserves also weighed on the dollar.

The European Central Bank left its key rate unchanged at 2.0 percent as expected, however, its President Jean-Claude Trichet said that strong vigilance against inflation was essential and the central bank was ready to raise rates should problems worsen.

Meanwhile, growing hopes that German Chancellor Gerhard Schroeder's Social Democrats and Angela Merkel's conservative Christian Democrats are finally moving towards forming a "ground coalition" also helped the euro.

Close to the weekend, dollar managed to trim some of its loss against the euro after a report showed the U.S. economy lost fewer jobs than expected in September. The U.S. economy shed 35,000 jobs, as hiring in some regions was offset by layoffs stemming from the damage caused by Hurricane Katrina.

According to the Labour Department the national unemployment rate kicked up to 5.1 percent from 4.9 percent in August. Meanwhile, the Labour Department revised up its estimates for job growth in July and August by a combined 77,000. Furthermore, U.S. Treasury Secretary John Snow said he expects improved payrolls numbers for October.

Next week, Markets will focus on the U.S. consumer price inflation data with expectations of higher headline and core numbers, which are likely to have been boosted by rising gasoline prices.

Other key data out of U.S. include trade balance and retail sales. In Europe, the key data that will be closely watched are French consumer price inflation and the euro zone's second estimate of the April-June gross domestic product.

Range for this week: $1.1980-$1.2280

Yen

Japanese yen started the week on a soft tone against the dollar on a slightly disappointing survey of corporate sentiment.