Last week?s trading on the foreign exchange market saw the dollar bounce back on stronger-than-expected US jobs data while the Japanese yen benefited from speculation that the Chinese yuan could be revalued; the sterling slid as a reduced majority for the ruling Labour Party fueled un certainty.

The US currency remained pressured throughout most of last week, consequent to the dovish statement from the Federal Reserve that accompanied the widely-expected 25 basis points hike in US interest rates on May 02. Comments that the risks of long term inflation in the US were ?contained? fed speculation that aggressive rate hikes by the Fed were now off the table.

However, the widely-awaited April jobs data released on Friday were well above market expectations (274,000 against 174,000) with prior data also revised higher. This eased concerns about a deceleration in US growth and brought analysts to revise their year-end forecast of the US base rate from 3.75 % to 4 %. The dollar immediately surged, firming from 1.2945 per euro before the jobs data to around 1.2820.

The focus this week will be on the March US trade data which will be released late today. Economists expect a record USD 61.5 billion, which could rekindle talk on the US twin deficits and weigh upon the dollar. Against the MUR, the dollar was offered at 29.35 yesterday compared with 29.33 a week earlier. The euro gained 8 cents to trade at 37.75 yesterday.

The yen was pressured for the fourth straight week by lingering speculation that China would soon revalue its currency, which would spark a rally in the other main Asian currencies. However, on Friday the Chinese deputy Finance minister urged currency speculators to be patient over yuan reform. The yen ceded gained ground on the comments. Against the MUR, the 100 yen was trading at 27.91 yesterday compared to 27.16 last week.

Economic data

The Sterling had a poor week, pressured by soft UK economic data. Data released showed the British manufacturing sector contracted for the first time in two years in April while a report by the Confederation of British Industry depicted the gloomiest picture for retailers since 1992. Uncertainty over the results of the UK parliamentary elections with the possibility of a hung parliament also weighed on the British pound. The results of the elections, with Tony Blair securing a third term in office but with a reduced majority, compounded the sterling?s woes.

Against the MUR, the sterling lost 15 cents last week to trade at 55.37 yesterday.

Major data/events this week:

■ Wednesday 11 May German CPI, manufacturing, French industrial production, UK international trade, US mortgage, international trade and Fed Budget

■ Thursday 12 May US retail sales, German GDP

■ Friday 13 May US manufacturing

■ Monday 16 May US capital net flows, New York Fed manufacturing Japan GDP

■ Tuesday 17 May US Redbook, housing, PPI and industrial production UK CPI and RPI

<I> Contribution by HSBC</I>