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Dollar hit by soft US data
Last week trading on the currency market saw the dollar weaken near its three-week low against the European single currency trading at above $ 1.2300. The greenback eased after analysts raised concerns about the US trade deficit number for July, which came in narrower than expected, but was still fairly sizeable. The US trade deficit narrowed to $ 50.15 billion in July, the second highest ever, whilst market was expecting a $ 51.75 billion gap following a record deficit in June of $ 55.82 billion. The still sizeable trade deficit underscores huge US demand for foreign products and the country’s reliance on foreign capital to fund consumption. Dollar was also weighed by softer-than-expected US producer prices, which could reduce expectations for Federal Reserve interest rate hikes. Prior to the release of the US trade report; the dollar was already trading on a softer tone following Greenspan’s testimony before the US House of Representatives Budget Committee on last Wednesday. In his speech, he gave a cautious outlook on the US economy, whilst stressing that inflation and expectations of inflation have eased in recent months. His remarks disappointed those who were long ondollars on expectations he would stand by its previous bullish reports.
Broad dollar sell-off</B>
Against the Mauritian rupee, the euro was trading at MUR 35.34 as compared with MUR 34.71 a week earlier.
Over the week, the Japanese currency showed resilience against the dollar despite a surprising downward revision to Japanese growth. The yen took a hit from figures showing Japan’s economy grew by 0.3% in April-June from the previous quarter, down from an initial estimate of 0.4 % growth and defying economists’ forecasts for an upward revision. Japan’s revised GDP data came on the heels of much worse-than-expected machinery orders for July on Thursday. However, yen recouped its losses after softer US producer prices and trade figure.
Yesterday, the Japanese currency was offered at MUR 26.29 as compared to previous Tuesday’s exchange rate at MUR 26.23.
Sterling joined a broad dollar sell-off to win a one-week high against the struggling US currency, as the greenback fell under the weight of the large July US trade deficit. Prior to the release of US trade figure, the pound was trading lower as Britain’s trade gap with the rest of the world widened in July to its biggest level since January. The Bank of England’s decision on Thursday to hold interest rates unchanged at 4.75% did not help the pound either, although steady rates had been widely expected. Recent weak UK data has powered speculation that UK interest rates will peak at a much lower level than previously thought.
Yesterday, the pound was trading at MUR 51.82 as against MUR 51.33 last Tuesday.
Major data/events this week:
Wednesday 15 Sept UK Average Earnings & Unemployment
US Industrial Production
Thursday 16 Sept
UK Retail Sales, US Jobless Claims
Friday 17 Sept
German PPI, Euro zone Industrial Production, US Michigan Preliminary
Monday 20 Sept
Tuesday 21 Sept
Euro zone ECB
<B>Contribution by HSBC </B>
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