THE DOLLAR threw a semblance of upturn at the start of 2004 but fell back like a sack of bricks versus the single currency, hitting yet new doldrums above the $1.27 level. The dollar has lost some 17 per cent in value against the euro and some nine percent against the yen last year.

The greenback did manage to draw some support in the first few days of trading, after investors were relieved there were no attacks against US targets during the New Year holidays, whilst a key US manufacturing report also gave a head-start to the currency. The Institute for Supply Management?s December report on manufacturing showed a reading of 66.2, well above economists? prediction of 61.0.

However, whilst in the chapter of economic indicators, the dollar did appear to have turned a corner, few in the market expect any spectacular diminution of the US current account and fiscal deficits this year. The US current account, a broad measure of the nation?s global trade, stands around 5 percent of the Gross Domestic Product. With interest rate levels at current multi-year low, economists fear insufficient investment flows may be attracted to fund the deficit, leaving the door open for a forceful depreciation of the US currency so as to increase export competitiveness and hence bridge the current account deficit gap.

Federal Reserve Governor Ben Bernanke added fuel to the issue after he said on Sunday that the central bank was right to hold interest rates at 45-year low given the low rate of underlying inflation. A G7 source reported lately that a meeting would be held in February in view to address the implications of the weakened dollar, especially in terms of its impact on European exports. The G7 source added that a single currency trading above $1.20 bode ill for the eurozone, whilst a level of $1.30 constituted a pain barrier.

Against the Mauritian rupee, the common currency was trading at MUR 33.79 as compared to MUR 33.57 a week earlier.

The yen traded near three-year highs versus the dollar on Monday in Tokyo, but intervention jitters capped the yen?s advance. The dollar fell to a four-week low of 106.76 yen in session?s trading, at which point the Japanese authorities were thought to have intervened to sell yen and buy dollar, thereby pushing back the price of the latter. Japan?s top financial diplomat, Zembei Mizoguchi, reiterated on Monday that the Japanese authorities remained ready to intervene in the currency market as necessary if there was a danger of volatility. Japan sold a record 20 trillion yen ($187 billion) in 2003 in an attempt to stop an export-damaging rise in its currency.

Yesterday, the Japanese currency was offered at MUR 25.17 as compared to MUR 25.16 on last Tuesday.

Sterling breached through $1.80 yesterday, its highest level since September 1992, when Britain withdrew from the European Exchange Rate Mechanism after losing a fierce battle with speculators. Like other high-yielding currencies, the pound has been benefiting from the dollar?s broad-based decline.

However, upbeat domestic fundamentals have also been supporting the pound. The latest CIPS-Reuters manufacturing index rose its highest since December 1999, and the 10th monthly improvement in a row. Manufacturing accounts for a fifth of the world?s fourth largest economy. Earlier, the pound retraced slightly upon an alert scare after British Airways cancelled a London-Washington flight for the second consecutive day on Friday.

Yesterday, the pound was trading at MUR 48.20 as against MUR 47.69 on last Tuesday.

Contribution by HSBC