Last week the euro initially lost ground against the dollar following speculation of an interest rate cut to boost up the flagging euro zone economy. However, it later rebounded on the back of profit taking in a technically driven market.

Euro initially dropped to a ten-month low of $ 1.1984 in the aftermath of the publicatioin of the last minutes of the Bank of England?s Monetery Policy Committee meeting which showed that two of its members voted for a interest rate cut in the UK. The minutes came on the heels of a 50 basis points cut in Swedish interest rat to 1.50 % and fuelled speculation that the Eueo zone central bank might follow suit.

Although the psychological level of $ 1.2000 was brokend, Euro recovered and rose to a high of $ 1.2160 helped by traders covering their short positions. Eueo also benefited from Qatari central bank governor?s comments that the oil rich nation was considering shifting some of its largely dollar denominated currency reserves euro. For this week, market willbe awaiting US Federal Reserve?s decision on US interest rates. It is widely expected that US base rate will be missed by 0.25 % tomorrow.

<B>Revaluing the yen</B>

The euro hardly moved against the Mauritius Rupee over the week.Over the week, soaring oil prices, touching well above the $ 60/barrel mark, hurt the Japanese currency against the dollar. Japan imports all of its energy requirements, and higher oil prices mean higher demand for dollar against the yen. In addition, decisioin by Chinese policy makers not to be pressured to revalue the yuan also added to yen woes. The Japanese currency being the proxy currency for yuan, traders sold the yen after the Chinese reluctance to quickly revalue their currency.

Yesterday, the yen was sold at MUR 27.15 as compared to MUR 27.21 last week.

Sterling initially fell against the dollar after dovish minutes from Bank of England?s meeting indicated to a two member vote for a interest rate cut in the UK. However, the pound recovered, mostly driven by euro recovery against the dollar.

Yesterday, the Sterling was trading at MUR 54.15 as against MUR 53.99 last week.

<B>Major date/event this week : </B>

■ <B>Wednesday 29 June : </B>

US Mortgage index, GB consumer index

■ <B>Thursday 30 June : </B>

US Fed rate decision. US Jobless claims. Euro zone consumer sentiment

■ <B>Friday 1 July : </B>

Euro zone Unemployment

■ <B>Tuesday 4 July : Euro zone index. </B>

<B>Contribution by HSBC<B>