The dollar traded on economic data expectations last week, as investors looked into the figures for clues on the recovery of the world?s largest economy. At the start of the week, the dollar was strongly bid both before and after a slew of indicators pointed to a solid recovery of the US economy. Second quarter GDP grew by 2.4 pct; regional Midwest industrial sector continued to expand, unemployment figures improved for the first time in a year to 6.3% from 6.5%, and consumer sentiment outstripped expectations. As a result, the euro tested the mid-July low near $1.1135; bonds fell whilst the eurodollar futures strip seemed to imply an interest rate tightening in early spring 2004. However, on the next day, nonfarms payrolls came in as a cold shower. The latter figures reported a loss of 44,000 in July compared to a market consensus gain of 18,000, marking the sixth consecutive month that the economy has shed jobs. Traders dumped the dollar, pushing the euro back to the $1.13 level. Whilst the recovery theme is gaining some credibility, some in the market is doubting the quality and consistency of growth in the US. This week?s agenda being lighter, analysts do not expect the same volatility as observed last week, and attention is likely to be confined to the equity and US Treasuries markets. Last week, a dramatic rise in the benchmark 10-year Treasury?s bond yield raised expectations that yields might pull in more foreign investors at the Treasury?s $60 billion refunding this week. In New York on Monday the 10-year yield was trading at 4.39 pct, off its highs above 4.50 pct hit last week. Against the Mauritian rupee, the common currency was trading at MUR 33.61 as compared with MUR 34.27 a week earlier.

The yen advanced against the dollar on Monday on the back of the US data impact on the greenback. Nevertheless, trades were seen range-bound as investors refrained from taking positions ahead of Japanese summer holidays next week whilst Japanese exporters appeared to have completed selling their dollar proceeds. Export sales constituted a barrier to the dollar uprise during the week as Japanese investors availed of the higher dollar exchange rate to convert their proceeds to meet local costs. Separately, news that the Bank of Japan/Ministry of Finance intervention in July was above expectations at about JPY2.27 trillion initially led to yen strength on two grounds at least. First, the US seemed to grow more critical of BOJ intervention in recent days and second, Japanese officials seemed to want to avoid the wrath of the US. Nevertheless, the initial strength of the US data appeared to have overshadowed the yen?s rebound though on the crosses, for instance EUR/JPY, the yen seemed to have maintained its firmness. Yesterday, the Japanese currency was offered at MUR 24.64 as compared to MUR 25.03 on last Tuesday.

Sterling held firm against the dollar on Monday but its rate of growth was relatively lower compared to the single currency against the dollar. An upbeat industrial survey on Britain?s construction by the Chartered Institute of Purchasing and Supply confirmed a manufacturing gauge released earlier by the same institution. The figures also tallied with robust retail sales and consumer borrowing figures released earlier during the week. The strong figures seemed to point to a status quo decision by the Bank of England when it convenes at its two-day rate-setting meeting ending on this Thursday. The Bank cut rates to 3.5 pct last month but a market consensus showed that the Bank is not expected to reduce rates this week. Yesterday, the pound was trading at MUR 47.66 as against MUR 48.48 on last Tuesday.

Major data/evens this week:

Wed 6 August - Ger unemployment rate, Ger industrial orders

Thu 7 August - Ger industrial output, GB MPC rate decision, US jobless claims

Friday 8 August -

Mon 11 August - Ger balance of trade

Tue 12 August - Fr industrial and manufacturing output, US FOMC meeting, US BTM sales.

Contribution by HSBC