Last week?s power outages in North East America sent the dollar recoiling as traders, fearful of yet another terror attack, liquidated their long dollar positions in panic-selling. However, as the news broke of the technical nature of the power failures rather than anything else, reassured traders gradually bought back the dollar. Holidays in Europe and elsewhere gave an exaggerated upswing to the dollar as price movements were amplified in illiquid trading. Dollar advocates and bull traders would argue the recent rally is also solidly tied to robust economic fundamentals. In fact, as of Tuesday morning, the dollar was making headway against the euro, hitting one-month high below $1.11 per euro.

The dollar firmed up on the back of overnight gains in US equities with sentiment also underpinned by economic optimism. Last week?s batch of data indeed tilted in favour of the greenback. US June trade deficit was smaller than expected, weekly jobless claims fell, inventories went up whilst retail sales, which account for nearly 40 pct of US personal consumption (itself about 67 pct of Gross Domestic Product), rose 1.4% compared to expectations of 0.6%-1.0%. Nevertheless, though on the upside, the economic data begs to convince, according to many a one analyst. The current low interest rate environment in the US also had investors at bay regarding inflationary pressures. On Thursday, the dollar fell despite the staunch retail sales figures as fears of inflation built in a premium in the longer-dated US Treasury bonds. The 10-year note yield hit a one-year high of 4.56 pct, with the equities market also responding negatively on that day. Earlier, the Federal Reserve left rates steady at a 45-year low of 1%, commenting that rates could stay low for a considerable period. Against the Mauritian rupee, the common currency was trading at MUR 32.66 as compared with MUR 33.32 a week earlier.

The yen rose on Tuesday morning in Tokyo, buoyed by gains in the Nikkei stock index as traders extended the rally started in US equities overnight. The benchmark Nikkei-225 average closed at 10,174 on Tuesday, up by 1.41% from Monday. The yen has been closely reflecting Japanese stock market moves recently. On Friday, it rose briefly after the Nikkei flirted above the psychological 10,000 level but receded after the average dropped back. The stock market swings were eagerly eyed in the light of certain rules changes pertaining to corporate pension funds to be implemented soon. The changes raised speculation Japanese investors would reduce exposure to equity stocks again. Apart from the above trading factor, yen movements were confined within the usual intervention threats from Bank of Japan/Ministry of Finance on one hand, and on the other, Japanese exporters selling their dollar proceeds into local currency. Yesterday, the Japanese currency was offered at MUR 24.62 as compared to MUR 24.77 on last Tuesday.

Sterling was swayed by movements in the majors during the week, in the absence of domestic events or data. On Tuesday morning, it was tracking the euro lower against the dollar, overshadowed by the dollar?s strength. Nevertheless, it spiked up to one-week high against the dollar last Tuesday thanks to upbeat UK jobs market data. A report showed the jobless count fell to 1.458 million in July, the lowest since the second quarter of 2001. The jobs data lowered expectations of future monetary easing by the Bank of England, which would erode the interest rate differential presently enjoyed by the pound. Yesterday, the pound was trading at MUR 46.64 as against MUR 47.66 on last Tuesday.

l Major data/events this week:

Wed 20 August ? E12 trade balance, FR GDP

Thu 21 August ? Ger GDP, GB retail sales, US jobless claims

Fri 22 August ? Fr unemployment rate ; GB GDP

Mon 25 August ? GB market and public holiday

Tue 26 August ? Ger IFO business climate

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