DEUTSCHEMARK sales for yen at the end of the week helped lift the US dollar against the German currency. The dollar finished the week at 1.6167 deutschemarks from 1.5949 deutschemarks on Monday. Against the yen, the dollar did not fare as well with the Japanese currency rising to a new record after a statement endorsing a strong yen from United States President Mr Bill Clinton. Trade talks between Mr Clinton and Japanese Prime Minister Mr Kiichi Miyazawa ended on Friday with Mr Miyazawa warning against a trade war. Japan's trade surplus with the US accounts for more than 70 per cent of the US trade deficit. In the absence of a clear resolution to trade tension, the yen is likely to strengthen further against both the dollar and the European currencies in the near-term. The expectation is that the yen will move towards 110 to the dollar and advance towards a record high of 68 against the deutschemark. Sterling pulled back against the dollar and ended the week relatively unchanged against the deutschemark. The outlook for sterling has become more upbeat recently, underwritten by positive economic news. Friday's release reported a 1.9 per cent year-on-year increase in the Retail Price Index in March. The news reinforced a growing perception in the market place that Britain is unlikely to lower interest rates again. Consequently, sterling should move higher against the European currencies this week. Uncertainly over the forthcoming referendum in Russia, scheduled for April 25, should also keep the dollar well bid against the Europeans. The market is likely to continue to speculate on interest rate action from the Bundesbank, which could keep a lid on the deutschemark on the crosses. At the other end of the world, the Australian unit appears to look comfortable around its current level of 71.62 US cents against the dollar, with strong support for the currency at 71.30 cents. The Canadian dollar, on the other hand, still looks vulnerable. Although the central bank would like to continue to reduce interest rates, there is a danger that a sharp fall in short-term money rates could still spark a sell off. The Canadian currency has come under pressure in the last two weeks on mounting concern over swelling provincial deficits. With the federal budget due for release at the end of the month, nervousness ahead of the event is likely to cap any potential upswing. Market attention this week is likely to be focused on the yen. Pauline Gately is Head of Research at BNP International Financial Services Ltd
