The euro clawed back grounds against the dollar on Friday after a dire unemployment report sapped a multi-week confident advance of the greenback. The dollar has been strengthening against the single currency over the past few days on the back of upbeat economic indicators. July factory orders were up, August non-manufacturing index was also above expectations and the Fed Beige book, an anecdotal survey of the US economy, was positive, albeit a slackness in the jobs market.

In fact, the Fed Beige book bearish remarks on the jobs market, as well as a premonitory downbeat weekly jobs data, spelt bad omen for the monthly unemployment report. The August jobs report showed nonfarm payrolls fell 93,000 versus forecasts for a 12,000 rise, while the jobless rate declined to 6.1 pct from 6. 2 pct when no change was expected. The weak jobs report persuaded Wall Street primary bond and money market traders that the FOMC is not going to change rates nor its biais towards risk at its meeting next Tuesday.

In fact, separate comments by some Federal governors that interest rates may remain low for as long as needed to sustain the economy also acted towards depressing dollar sentiment. Against the Mauritian rupee, the common currency was trading at MUR 32.64 as compared with MUR 32.20 a week earlier.

The yen retreated on Monday on strong talks that Japan had actually intervened in the market intermittently since the middle of last week. The yen?s latest drop occurred around 6.30 am in Tokyo on Monday in thin market conditions. Dealers were spooked to see large ticket sizes ticking on the screen, which was thought unusual at such an early time in the morning.

The apparent intervention occurred as speculation became rife in the market that Japan may become less aggressive about stepping in due to disapproval from Washington. The White House said last Tuesday that currency intervention should be kept to a minimum. Although the comment was thought to be mainly directed at China fixed regime of yuan against the dollar, traders took it to bear ill connotation for Japan?s active intervention policy.

Bank of Japan Governor Toshihiko Fukui declined to comment on the yen on Monday but Japanese Vice Finance Minister Hayashi said that «when the market makes rapid, big moves due to speculative trade, we will actively intervene.» Indeed the dollar shot up more than one yen to 116.80 on Monday from a 3-1/2 month low of 115.75 hit earlier on Thursday after news that Tokyo had not intervened at all in August.

Barring the intervention talks, analysts are also betting that renewed confidence by foreign investors in Japanese stocks will sustain the yen in the medium term. Capital flows data released by the Ministry of Finance showed overseas investors continued to pour funds into Japanese resurgent stocks, buying a net 326 billion yen ($2.8 billion) last week. Yesterday, the Japanese currency was offered at MUR 25.29 as compared to MUR 25.27 on last Tuesday.

Sterling cruised higher against the dollar last week, trading near two-week peaks against the greenback on Monday as a barrage of data reinforced the view that the economy was on a consistent economic recovery path, with upward pressure on the interest rate. Economic indicators lent a firm thumbs up to the cable during the week, with the latest piece of data showing British manufacturing output rising by 0.5 pct in July, above economists? expectations.

The BoE left rates unchanged at a 48-year low of 3.5 pct on Thursday but analysts are pricing in a hike in the rates by the year end as the economy gathers speed. Gilts yields soared above 4.5 pct for the first time in a year last week and interest rate futures are now spiking slightly up on the shorter term curve tail.

Sterling also took a breather after Lord Hutton closed the first phase of the inquiry into the suicide of the weapons expert David Kelly, affording the currency some respite until September 15 when it is due to reopen. Yesterday, the pound was trading at MUR 46.70 as against MUR 46.23 on last Tuesday.

Contribution by HSBC