Last week trading on the currency market saw the dollar languish near its lowest level in over seven months against the European single currency, trading above $1.25. The greenback eased as lacklustre data and soaring oil prices cast a shadow over the United States’ growth outlook, and the pace of future Federal Reserve interest rate hikes. Higher oil prices are US dollar-negative as they act as a tax on consumption by soaking up disposable income, thus hitting consumer sentiment, spending, and ultimately economic growth. Oil prices hit a record high above $ 55 a barrel on Monday as fears of a winter supply crunch propelled heating oil prices to record peaks. Moreover, the dollar lost further ground after release on last Friday of weak US consumer sentiment, soft industrial output and a bearish New York state manufacturing survey all suggested the US economy might be losing steam. Even stronger-than-expected US retail sales data gave the dollar no support. Moreover, in a context in which exporters are not looking to be doing well, and industrial production is declining, it is likely that the rate of tightening of US interest rates will be modest. As a result, any slowing in the Fed’s rate-hiking campaign would hurt the allure of US denominated assets.

Against the Mauritian rupee, the euro was trading at MUR 35.98 as compared with MUR 35.65 a week earlier.

Over the week, the Japanese yen strengthened against the dollar, as the greenback’s tumble across the board dominated market movements. Yen also found support from a larger-than-expected current account surplus earlier in the week. The surplus in Japan’s current account, the broadest measure of trade in goods and services, rose 2.3 percent in August from a year earlier to 1.4470 trillion yen ($13.20 billion). That beat expectations for a fall of 22.2 percent.

Yesterday, the Japanese currency was offered at MUR 26.47 as compared to previous Tuesday’s exchange rate at MUR 26.37.

Sterling rose to a two-week high against the greenback, as investors focused on the dollar’s renewed weakness, which stemmed from some softer than expected economic data on last Friday and widening US current account deficit figures earlier in the week. In recent weeks, sterling has been under pressure as weak UK data and comments from Bank of England policymakers reinforced expectations that UK interest rates are at or near their peak. As a result the market had scaled back expectations for future UK rate hikes. UK rates are currently at 4.75 percent after 125 basis points of rises since November 2003, and economists expect at most one more 25 basis point rate rise till the end of the year.

Yesterday, the pound was trading at MUR 51.85 as against MUR 51.78 last Tuesday.

Major data/events this week

• 20 Oct

• 21 Oct

UK Retail Sales,

US Jobless Claims,

US Philadelphia Fed,

US Chicago Fed

• 25 Oct

German IFO

• 26 Oct

Frnch PPI,

US Consumer Confidence