Currencies
The dollar rose to a five-week high against the euro amid speculation interest-rate cuts from the Federal Reserve will restore growth in the U.S. The dollar was boosted as the Fed's rate reduction was less than the 50 basis points some investors expected. A smaller cut helps the U.S. currency by preserving more of the returns available on dollar-denominated assets such as short-term deposits. Currency traders were pleased that the Fed only cut rates by 25 basis points. They also viewed the Fed's statement as positive when talking about U.S. growth prospects. Investors are focusing on relative growth rates at the moment, and the U.S. has better prospects than Europe or Japan.

Japan's economic data that were reported on Friday certainly didn't give the yen anything to cheer about. Deflation remains in place and consumer spending dipped more than expected. The only pleasant surprise was that industrial production rose. However, this is probably only a monthly blip as manufacturing firms brought production back to Japan to avoid disruptions from SARS in their mainland Chinese facilities. The yen fell as some analysts and investors speculated that Japan will sell its currency again, trying to stem a gain that threatens to crimp exports. The Bank of Japan, at the behest of the Ministry of Finance, sold a record ¥3.98 trillion yen ($33.7 billion) in May to keep its currency from strengthening and has spent more than ¥6 trillion yen this year.

A stronger currency may push Japan into recession for the fourth time in 12 years. It reduces export revenue in yen terms and makes it more difficult for exporters such as Toyota Motor Corp. to compete with rivals overseas. Conversely, the dollar's decline is translating into a sales boost at U.S. companies and stoking optimism about the economy's recovery, a survey of chief financial officers found.

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