Last week trading on the currency market saw the dollar pull back after it had rallied to two-month highs against the European single currency. The dollar had started the week on a strong note due to investor demand. The dollar surprising strength had caught market players off guard after poor US retail sales in March, and US reports showing US trade deficit hit a record $61.0 billion in February. Some market players had suspected the rally was being driven by speculative traders unwinding dollar-funded bets in commodity and oil markets given renewed concerns about the pace of global growth. As a result, US stock markets sank to their lowest level in 5-1/2 months on last Thursday on concerns that the economy might be faltering.

Furthermore, the dollar also benefited from a report showing net inflows to US assets in February adequately offset the country?s monthly trade deficit. The US trade deficit has been a persistent weight on the dollar, and a key factor in the currency?s decline over the past three years. Net purchases of US assets were $84.5 billion in February, higher than analysts? rough forecasts for $65 billion and down from a revised $92.5 billion net inflow in January. But in the early part of this year, the dollar had begun to recover as rising US interest rates buoyed the currency, burnishing the allure of dollar-denominated assets to foreign investors.

Fall of European and Asian markets

However, dollar gave back its earlier gains after sliding equity markets raised concern about global economic growth. It was driven by weakness in US data. European and Asian stock markets fell on Monday after Wall Street ended at a 5-1/2 month low. Against the Mauritian rupee, the euro was trading at MUR 38.20 as compared to MUR 38.08 last week.

Over the week, the dollar was weaker against the yen trading at 107.30 yen, after rising to above 108.00 earlier in the week. However, yen gains were less pronounced in the wake of big losses in Asian stock prices, which were driven in part by worries about strained relations between Japan and China.

Yesterday, the Japanese currency was offered at MUR 27.45 as compared to previous Tuesday?s 27.35.

Sterling moved away from its week?s low against the dollar. Earlier, the pound had been buffeted by a sweeping rally in the US currency, despite the release of weak US data. Future interest rate expectations and the potential for political risk due to the British general election on May 5 will be the main underlying focuses for sterling in the weeks to come. Analysts remain divided over whether the Bank of England will raise rates again, after five rate hikes in 1-1/2 years to the current 4.75 percent.

Yesterday, the pound was trading at MUR 55.82 as against MUR 55.46 last Tuesday.