The dollar pushed higher on Monday in New York, propelled by upbeat construction and manufacturing data which drove home to investors the US recovery story. The data-driven dollar rally started as early as last Thursday following a surprise 7.3% jump in Q3 Gross Domestic Product data.This, added to a drop in weekly jobless claims of 386,000 and earlier upbeat consumer confidence figures, helped the greenback to claw back some grounds against the single currency. The latter retreated on Friday on news that the Russian government took over the Yukos stock holdings of the recently arrested company chief Khodorkovsky, which stoked concerns of nationalism.

The dollar also eked out some support from US Treasury Secretary John Snow?s testimony to the Senate. The testimony, as expected, did not cite China or Japan for currency manipulation. In the Q&A session, Snow said that Japan did not meet the criteria for currency manipulation, noting that the yen had firmed from 135 to 108 over the last eighteen months. Snow also said China did not meet the technical criteria for currency manipulation and that its current account surplus had declined even though it had had a fixed exchange rate over the last decade.

However, he said a flexible, market based exchange rate was appropriate for China along with reducing barriers to trade and to capital. Following the testimony, the dollar broke euro support at 1.1660 and also rallied against other currencies. Elsewhere, the dollar also got a modest and fleeting boost yesterday after the Federal Reserve decided to leave interest rates unchanged at 1%. The Fed propped up its assessment of the economy, saying the US labour market ?appears to be stabilizing? whereas it had previously said the market had ?been weakening?, although the Fed?s statement was almost identical to its statement after its September meeting. Against the Mauritian rupee, the common currency was trading at MUR 32.97 as compared to MUR 33.78 a week earlier.

The yen ticked up yesterday morning in Asia after a sharp rebound in the dollar prompted Japanese exporters to sell their dollar-denominated proceeds. During the week, it retreated after Snow steered clear of criticizing Japanese currency policies at the Senate hearing. The yen had hit a three-year peak of 107.86 earlier amidst speculation Snow might criticize Japan?s intervention régime and China?s peg at the Senate testimony. On top of trillion worth of yen-selling intervention this month, Japan had sold some 13.5 trillion yen ($124 billion) so far this year in an attempt to curb the export-damaging impact of an increase in the yen. The latter had been rising of late due to economic upticks. On Wednesday, for instance, the yen rose after data showed Japan?s industrial output rose 3.0 percent in September, the biggest gain since May 2002.

Yesterday, the Japanese currency was offered at MUR 26.23 as compared to MUR 26.68 on last Tuesday.

Sterling withdrew against a rebounding dollar on Monday but held firm to recent highs versus the latter, on heavy expectations of a rate hike at next November 6?s Bank of England Monetary Policy Committee rate-setting meeting. The rate rise view was set rolling after minutes of the October?s meeting showed four members voted for a rate rise while five voted for no change. Sterling rose further after the US FOMC left rates unchanged at 1.0 percent this week, compared to the official UK rates of 3.5 percent.

Yesterday, the pound was trading at MUR 48.23 as against MUR 48.81 on last Tuesday.

Major data/events this week:

Wednesday 5 November

Ger Reuters Services PMI; GB industrial and manufacturing production, GB Reuters Services PMI; US durable goods, US ISM non-manufacturing

Thursday 6 November

Ger unemployment rate, Ger industrial orders, EZ ECB rate; GB BoE rate; US jobless claims

Friday 7 November

US unemployment rate

Monday 10 November

GB PPI output

Contribution by HSBC