Last week saw the dollar going through tough times against the euro and the Sterling. In fact, the dollar nose dived to record lows against the euro due to sagging job data and a wide spread perception in the market that the United States was not inclined to rein in the dollar’s fall.

Initially, the dollar’s decline gathered impetus when the US job report for November showed payroll rising at a slower rate than economists had originally expected. The dollar crumbled to a record low of $ 1.3470 per euro on Tuesday.

This is the dollar’s biggest fall against the euro since August and the eighth time in the last nine sessions that the dollar fell that low against the euro. The dollar came under additional pressure after the US non-farm payroll rose to 112,000 in November, well below economists’ median forecast of a rise of 180,000 jobs. The jobless rate, on the other hand, was 5.4 percent, matching forecast.

According to analysts, short-term traders were positioned to benefit from a better-than-expected economic situation and the job data did nothing but exacerbate the dollar fall. The greenback fleetingly recouped some of its losses as the Institute of Supply Management indicated that non-management data for November was 61.3 compared to the expected reading of 58.7. Against the Mauritian rupee, the dollar was trading at MUR 28.58 yesterday compared to MUR 28.70 a week earlier.

Disorderly movement in exchange rates

The euro surged to unprecedented high against the dollar. In a collective move emphasizing concerns for the surging euro, ECB president Jean-Claude Trichet joined the chairman of the 12 euro-zone finance ministers in a conference in Brussels last Monday.

In a joint statement read by the Dutch Finance Minister Gerrit Zalm, the ECB was in the opinion that the excessive volatility and disorderly movements in exchange rates were undesirable elements for economic growth. He added that the situation would be monitored closely.

Furthermore, the chorus of European disapproval for the euro rise corroborated with the stepped-up warning by the Japanese authorities. Consequently, the market expected a coordinated intervention by both the European Central Bank and the Bank of Japan to stem the dollar fall.Against the Mauritian rupee, the euro was trading at MUR 38.36 as compared with MUR 38.07 a week earlier.

The Sterling rushed to its highest level against the dollar beating the 12-year peak of September 1992. In addition, the pound hit a four-week high against the euro, empowered by robust UK manufacturing data.

In addition, a cocktail of upbeat housing and retail sales data mixed with some hawkish comments from the Bank of England Governor, Mervyn King, buoyed the pound further. According to a survey done by the National Institute of Social and economic research, the UK economy grew by 0.4 percent in the last three months ending November compared to the preceding three months.

Sterling rose to as high as $1.9508 against a vulnerable dollar on Tuesday as worries grew that the United States would fail to attract sufficient funds to cover its gaping current account deficit. Against the Mauritian rupee, the Sterling was trading at MUR 55.49 yesterday as compared with MUR 54.26 a week earlier.

Major data/events this week:

■Wednesday 08 Dec US Mortgage indx GB Trade bal’ce

■Thursday 09 Dec GB BoE rate US jobless claims

■ Friday 10 Dec US PPI, Michigan Prelim

■Monday 13 Dec GB PPI, US retail sls

■ Tuesday 14 Dec US Redbook

<I>Contribution by HSBC</I>