Currencies
Both the euro and the yen continued to weaken against the dollar last week after their initial jumps in the aftermath of the terrorist attacks. Since then, the dollar has steadily regained its strength. Strategists say the market focus is still on U.S. equity markets and risk aversion. The European economy is looking weaker by the minute and even the government of Japan is admitting that the nation is in recession and will be there for the whole of this fiscal year. By comparison, the U.S. looks like the best bet for a speedier recovery due to the aggressive monetary and fiscal stimulus from the government. The euro posted its worst weekly loss in four months after the Ifo said German business confidence sank to an eight year low. The euro touched its lowest level since the hours before September 11.

One source of support for the dollar against the euro - investment flows from purchases of U.S. companies - has increased. A net $13 billion flowed into the United States from Europe in the six weeks after the attacks, up from $4.5 billion in the six weeks before Sept. 11. Direct investment from abroad is an important support for the dollar.

Dollar buying by the Bank of Japan to weaken the yen is partly responsible for the strength in the U.S. currency. The Japanese government bought about $25 billion of dollars and euros last month to weaken the yen in the days after the terrorist attacks. From Japan's point of view, a cheaper yen is desirable as it pads profits for the country's exporters and makes their exports cheaper abroad.

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