Treasury - Daily Forex for day 19.09.2006

The dollar jumped to a five-month peak against the yen, but fell against the euro on Monday due to mounting expectations that the European Central Bank will have to tighten interest rates more agressively. The yen seemed hit by a weekend's G7 communique that surprisingly did not mention Asian currencies and the need to give them space to rise. The dollar retreated from an intraday high of $1.2632 per euro, undermined by hawkish comments from ECB Governing Council member Klaus Liebscher who stressed the risk of quickening inflation in the euro zone. The data also proved dollar-negative. The U.S. Treasury Department showed net capital inflows into the country amounted to $32.9 billion in July, the lowest since May 2005, down from $75.1 billion in June and well below a $70 billion expected.

The crown firmed moderately versus the euro on Monday, rebounding further from six-week lows hit last week. The crown seems helped by Czech exporters, who are taking advantage of current weak level of domestic currency, and speculations that the central bank could tighten policy already next week.