Last week trading saw the dollar surge against the major currencies on the back of upbeat US economic data. Against the euro, the US currency rose by eleven percent, trading at around 1.1990 USD per euro. The release last Thursday of stronger than expected US retail sales report showing a 1.7 percent increase strengthened the view of an optimistic US economic outlook, and underpinned the expectation of a near term increase in US interest rates. Strong US consumer spending largely justifies the Federal Reserve’s policy of increasing US interest rates.

As a result, market participants are expecting the US base interest rate to rise up at least to 3.75 % by the end of this year as against the speculation of UK interest rate cuts to around 4 % and the indecision by the European Union on the Euro interest rates. Moreover, the US dollar got a boost after net inflow of foreign capital into US assets rose to $ 60 billion in May, more than the amount needed to cover the US trade deficit of $ 55.3 billion. So far, dollar sentiment is very strong and market is speculating on a fairly bullish semi-annual testimony on the US economy from the Fed Chairman Alan Greenspan on this coming Wednesday.

Against the Mauritian rupee, the euro was trading at MUR 35.94 yesterday as against 36.13 a week earlier.

Over the week, the Japanese yen maintaind its slow slide against the dollar to the 112.60 level, mainly due to highly volatile oil prices, and the delay by the Chinese policy makers to revalue the yuan’s virtual peg of 8.28 to the dollar, giving the yuan the advantage of an artificially cheap export zone.

Traders are speculating that the yen may slide to 115-120 range against the dollar in the near future. However, in the short term, we might see the JPY turn around as investors might have to buy back the Japanese currency to cover their short positions. Already there have been some short covering in a technically driven market ahead of Japan’s holiday on last Monday.

The yen was sold at MUR 26.71 as compared to MUR 26.76 last week.

Sterling continued its free fall against the dollar, sliding from $1.7721 to $1.7394, as the pound was pressured by the anticipation of UK interest rate cuts. The release of U.K jobless claims data showing an increase of 8,800 in June, for a fifth month in a row, also impacted the pound negatively.

The Sterling was traded at MUR.52.09 as against MUR 52.43 last week.

<B>Major data/events this week :</B>

■ <B> Wednesday 20 July </B> US Mortgage index.

■ <B>Thursday 21 July </B> US Jobless claims, GB Retail price index.

■ <B>Friday 22 July </B> GB GDP data.

■ <B>Monday 25 July </B> US Home Sales data.

■ <B>Tuesday 26 July </B> US Redbook.

<B>Contribution by HSBC</B>