Last Friday, the meeting of the group of G20 richest and emerging markets came to a deadlock as far as helping the greenback from dangling at historical lows versus the euro. The G20 communiqué was evasive on the dollar’s recent bout of weakness and gave credence to the opinion that the United States preferred a weaker dollar to soften a burgeoning current account deficit. Furthermore, the warning of the US Federal Reserve Chairman, Alan Greenspan, reinforced the fear of dollar bulls by commenting that the foreign demand for US’s financial assets that bridged the US colossal current account deficit, would eventually wane away. He added that the US should take measures and cut its record deficit or faced the consequences.

The current account deficit, the net result of the country’s global trade, approximates 6 % of gross domestic product. In other words, a daily inflow of $ 3 billion is needed to ease the gap or otherwise the dollar would fall. In the recent months we noted a constant weakness of the dollar despite the claims of the US administration to a stronger US currency.

Against the Mauritian Rupee, the dollar traded at 28.77, which is the same as last week.

Peaked interest rates

The sterling rallied to a four-month high against the dollar but hit an eleven months low against the euro. For the most part of the week, the pound was swayed by moves in other currencies like the euro/dollar and the dollar/yen. In the later part of the week, a string of soft economic data showed lower than expected sales and signs that the UK’s housing market had slowed down. These bearish data together with the minutes of the Bank of England to keep the interest rates at 4.75 %, underscored the view that the UK’s interest rates had peaked. The market prices for British homes, according to property website Rightmove, fell by 1.7 percent in the month of mid-November, compared to 0.6 % gain in the previous month. The Bank of England had raised interest rates five times during the year and the tightening monetary policy had stem Britain’s once booming housing market.

Against the Mauritian Rupee, the Sterling was traded at 53.42 against 53.23 last week.

For the first time in four years, the yen rallied to 103 yen to the dollar, especially after the dovish comments of US Federal Reserve Chairman, Alan Greenspan, concerning the structural problem underlying the US currency. In addition, only the threat of an intervention by the Bank of Japan had kept the yen from strengthening below the 103 support level. Last Monday, Japan’s Finance Minister Sadakazu Tanigaki welcomed Bush’s reiteration of a “strong dollar” policy and said that Japan would intervene to reduce exchange rate volatility. According to analysts, Japan should curb the yen rise to protect the country’s export-led recovery. Japan had not intervened in the market since March after a record intervention in 2003 amounting to 20 trillion yen ($194.1 billion). Statements from top Japanese authorities left rooms for discussion that the short-term moves of the yen against the dollar was not provoked by economic fundamentals.

Against the Mauritian Rupee, one-hundred yen was traded at 27.92 against 37.41 last week.

Major events

▀ Wednesday 24: US Mortgage Indx, Durable Gds, US Jobless Claims

▀ Thurday 25: EZ ECB

▀ Friday 26: Fr PPI

▀ Monday 29: Fr cons Spend

▀ Tuesday 30: US Redbook, Chicago PMI, GDP

<I>Contribution by HSBC</I>