Last week saw the dollar gaining modestly against the euro after the Federal Reserve hiked up US interest rates by 25 basis points to 2.0 %.

However, the supposedly dollar-boosting rate increase did not have a lasting effect in reversing the bearish sentiment on the US currency. In lifting the interest rates, the Federal Bank sought to equate the upward and downward pressures to economic growth and price stability. The Fed cited robust US non-farm payroll report for October, buoyant retail sales in September and softer oil prices.

According to analysts more monetary tightening should help to slow the fall of the dollar and higher interest rates will boost the yield on short term US assets, burnishing their allure to foreign investors.

On Friday, the dollar sank against the euro as the market shrugged off the robust US economic indicators to re-focus on the shaky dollar fundamentals.

Against the Mauritian Rupee, the dollar traded at 28.77 against 28.75 last week.

The sterling hovered near recent lows against the euro all week long after a more dovish than expected Bank of England (BoE) inflation report.

In fact, the BoE quarterly inflation report did nothing to retrieve the pound from recent 10-month lows against the euro despite data showing that Britain’s trade deficit narrowed in September as exports shot up to their highest level in more than 2 years. The goods deficit shrank below market expectation of 5.1 billion pounds to 4.55 billion pounds against 5.16 billion in August.

On the contrary, the BoE’s inflation report signalled that the Uk’s interest rates have peaked to its present level of 4.75 percent. Currency watchers will look to a batch of UK economic data out for further confirmation that rates will be less likely to increase beyond the current 4.75%.

Against the Mauritian rupee, the Pound traded at 53.23 against 53.37 last week.

The euro increased its pressure on the dollar throughout the week despite European Central Bank’s president Jean-Claude Trichet’s comments that the currency’s recent strength was “brutal” and “unwelcome”.

That line of thought was later taken over by European Central Bank (ECB) vice-president Lucas Papademos who reiterated in Tokyo on Friday that disorderly movements and excess volatility in the euro are not desirable.

However, the euro showed little reaction to these comments as analysts believed that those comments from the ECB officials were too weak to produce a reaction.

Against the Mauritian Rupee, the euro traded at 37.27 against 37.23 last week

<B>Contribution by HSBC</B>

Major events

Wed 17

EZ Ind Prod US Mortgage Indx, CPI, Ind Prod

Thur 18

US Jobless Claims

Friday 19

Monday 22

Tues 23

US Retail Sales, Redbook, Mortgage Indx