Currencies
The British pound sterling continued to track the euro, which gained earlier in the week against the U.S. dollar. Sterling's value against the dollar tends to trade in tandem with the euro's value against the dollar because of European trade links and the possibility that Britain will join the European Economic and Monetary Union in the next few years. Britain sells 60 percent of its exports to EMU nations. The outlook for the pound is gloomy as investors are likely to keep favoring the dollar over the euro given the aggressive efforts by the Federal Reserve, in contrast to the European Central Bank, to spur economic growth. Sterling may also come under pressure in coming months because of the dichotomy between its manufacturing sector (in recession) and its consumer sector (soaring).

The euro gained ground against the dollar after falling below $0.84 on July 5. Strangely, the euro has been boosted by the Argentine crisis, in part on the suspicion among traders that the United States is more vulnerable to Argentine than is Europe. The euro was also helped by better than expected economic reports from Germany and by Bank of England Governor George, who said the dollar's strength against the euro was perverse. George said the strong dollar is hurting U.S. growth through merchandise trade accounts and is adding inflationary pressures to Europe through more expensive imports. But ECB President Duisenberg weighed in on the other side, saying that in his view the euro was not weak but stable.

The yen traded within a narrow range as investors waited for the Bank of Japan's decision on Friday. They left monetary policy unchanged despite pleas from just about everyone to increase money supply. With the election fast approaching on July 29, traders will be cautious. When the yen falls in value, exporters take advantage of the favorable exchange rate to bring home profits. Undoubtedly, the rise in the yen's value this week reflects this activity.

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