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US dollar rides high
The US dollar peaked against all other major currencies last week as the market’s expectation of more interest rate hikes by the Federal Reserve of United States was very tangible. The traders’ prediction of a rise of a quarter percent each for two consecutive hikes by the end of this year boosted the US dollar.
The Fed’s consistent view of containing rising inflation rates by encouraging high yielding dollar denominated assets and also bringing in foreign investment supported the dollar. Some of the first monthly US data after Hurricane Katrina, released last week was positive; reinforcing the view that damages caused by the passing of Hurricane Katrina and Rita were manageable and a temporary set back.
US gross domestic product showed a steady growth of 3.3 % annual rate in the second quarter as estimated, the Chicago purchasing index rose to 60.5 in September from 49.2 a month earlier and the vital data of jobless claims dropped to 356,000 in the last week of September as compared to economists’ forecast of 420,000. Further more, the repatriation of profits by the US companies from Europe before the end of September quarter also strengthened the dollar. In the absence of any decisive European development, the euro stumbled further against the US dollar last week. The US dollar rose to a three-month peak of 1.1930 against the euro last week.
The yen drops</B>
The dollar traded at MUR 30.5097 and the EUR at MUR 36.51 as against MUR 30.25 and MUR 36.52 respectively last week. The Japanese yen hit a 16-month low of 114.20 against the US dollar in a technically driven seasonal market last week. The closing of positions for the half-year end on the last trading day of September by the Japanese importers pushed the US dollar up. Despite the almost non-stop rally in the Nikkei share average over the past two months, the yen had fallen prey to the Japanese tendency to buy foreign bonds, mostly high yielding US dollar denominated ones. Market expectations of further US interest rate hikes and the weak corporate survey data in the quarterly Tankan report pulled the Japanese yen down. But the traders believe that the negative sentiments would not last long as the Japanese medium-sized and the small companies showed a positive rise signaling a robust economy. And the market also speculated that the Bank of Japan may scrap the present easing monetary policy of near zero percent interest rates on a sustained basis depending on the Japan’s core consumer price index. Yesterday, the yen was sold at MUR 26.92 as compared to MUR 27.01last week.
The UK pound dropped to a two-month low of 1.7521 against the US dollar last week after UK economic indicators showed an unexpected weakness in British retail sales and economic growth. The gross domestic product (GDP) data for the second quarter showed annual growth at its weakest rate in 12 years at 1.5 pct compared to a previous reading of 1.8 pct and the Confederation of British Industry’s trades survey data indicated a drop in sales volumes – the lowest for 22 years. Along with the low GDP figures, the market’s focus was on the bleak CBI data to underpin traders’ expectation of further interest rate cuts by the Bank of England before the end of this year. The dynamics of interest rate differential is negative for sterling compared to the US dollar. Some of the other positive economic indicators like the narrowing of the current account deficit in the second quarter, to 3.05 billion pounds had very little effect on the UK pound.Yesterday, the Sterling was trading at MUR 53.70 as against MUR 54.66
<B>Major data/events this week:</B>
■ <B>Wednesday 05 October: </B> US Mortgage index,
■ <B>Thursday 06 October: </B> US Jobless claims,
■ <B>Friday 07 October: </B> US Consumer credit index,
■ Tuesday 11 October: </B> US Redbook.
<B>Contribution by HSBC</B>
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