In the wake of the Group Seven Finance Ministers and that of OPEC meeting, the dollar posted slim losses vis a vis major currencies yesterday, as the market pondered over the potential slide in the oil prices. The G7 statement and Saudi Arabia?s decision to raise output, despite opposition from other OPEC members, helped to ease worries that high oil prices could dampen the growth in the US economy. However, concerns still prevail over oil supply and OPEC unity sending the greenback sharply lower yesterday. Yesterday, the dollar was trading at 1.21 against the euro

On the other hand, many analysts are pricing in the element of a potential interest rate hike by the Federal Reserve in June of this year. Although such an expectation appears to be reasonable, the market still is not expecting an increase higher than 25 basis points. Many economists believe in a tectonic shift causing world economy to change its strategies from the times of easy money; however, no one so far can map out what the new strategies will be.

Sterling buoyed by rate hike expectation

US monetary and fiscal accommodations seem outdated while such policies, in most other countries, appear to be at or past the bottom of their own interest rate cycles. Many investors and speculators remain profitable by unwinding strategies that have been popular in an environment dictated by easy money coupled with low inflation rate. These strategies included being long bonds, emerging markets, commodities, commodity currencies, equities and short the US dollar.

The dollar was trading at MUR 28.40 yesterday compared to 28.15 last week.

The Sterling went through a roller-coaster ride on the volatile dollar hitting a 2 week high, on Monday, after record mortgage lending data added to market views the Bank of England may soon raise interest rates. The pound was being supported by robust UK?s economic performance and little evidence exists to support a slowdown of retail sales. Data last Friday showed that consumers were taking out record levels of mortgage debts to finance the acquisition of expensive properties.

Fate of the Yen hangs on the Nikkei hands

Against the Mauritian Rupee, the pound was trading at MUR 50.85 compared to MUR 49.62 last week.

Over the week the Yen was the top performing currency, narrowing on the dollar by approximately 2%. This week many corporations are publishing their earnings and the consequential effects upon the Nikkei will definitely plot the yen course. Since the Yen is correlated to the Nikkei, an increase the Japanese stock market will cause foreign investors will step into the foreign exchange market and start buying the Yen.

Against the Mauritian Rupee, the Yen was trading at MUR 25.13 compared to MUR 24.66 last week.

Major data/ events this week:

Saturday 29 May

Fr PPI

Sunday 30 May

FR Consumer Confidence,

GDP Q1

Tuesday 01 July

EZ ECB Interest policy meeting

Contribution by HSBC