The key market themes of last week were undoubtedly the comments of Federal Chairman Alan Greenspan. In his comments about the US economic outlook, Greenspan stated that the US economy is moving away from the “soft-patch” and has regained some ‘’traction’’.

The financial market, however, focused more on Greenspan’s sanguine take of inflation which cast some doubts on the potential of any other increase in interest rate this year. This caused the greenback to sag against the euro and pushing treasury bills higher in the early part of the week.

According to Greenspan, there was no significant inflation premium in the US monetary system, while the ever-widening budget deficit could increase the risk of stagflation. On a historical note, such caustic mix of high inflation and low growth did plague the US economy in the 1970s. The US current account deficit was expected to have widened in the second quarter to a record of $ 159.35 billion or about 5 % of gross domestic product.

Against the Mauritian rupee, the dollar was offered at 28.81 yesterday against 28.80 a week earlier.

Sterling braked and steadied itself against the euro and the dollar after a roller-coaster ride throughout the early part of the week. The volatility of the sterling was due to soft UK’s economic indicators as well as comments made by policy makers which stimulated investors to speculate that UK rates could be close to their peak at 4.75 %. However, robust retail sales for August allowed the pound to unravel some of its losses and maintain its gains through Friday.

On Monday, the pound lost more than half a percent against the dollar as signs emerged that higher interest rates were cooling down UK’s once-booming housing market. Those signs did nothing but reinforce the expectation that interest rates were nearing a peak, hence, drowning the pound to near session lows against the euro and the dollar.

Against the Mauritian rupee, the sterling was offered at 51.45 yesterday against 51.82 a week earlier.

The yen softened slightly against the dollar towards the end of the week as expectations for a US rate hike kept on increasing. In addition, fear of higher oil prices could temper with the strength of the Japanese currency ahead of the G7 meeting. In fact, Japan imported all of its oil and higher oil prices would impact economic growth and inflation. The Japanese market was closed on Monday for a national holiday.

However, the dollar-yen is expected to navigate in tight ranges until October when Japanese investors are expected to invest fresh funds in foreign currency investment portfolio. Hence, pressuring the dollar upwards.

Against the Mauritian rupee, the yen (yen 100) was offered at 26.28 yesterday against 26.29 a week earlier.

<B>Contribution by HSBC

Major data/events this week:</B>

Wednesday 22 Sep

US Mortgage Index

Thursday 23 Sep

US jobless Claims

Friday 24 Sep

US Durable good

Monday 27 Sep

Tuesday 28 Sep

US Consumer confidence