The US dollar was subdued temporarily before bouncing back, recouping earlier losses. The fall in the US currency started with the release of a string of weak US economic data, undermining positive US dollar sentiment amongst market participants.

Those data released were as follows: US consumer prices rose only by 0.1 percent in September compared to a forecast of 0.2 percent increase; retail sales data showed a rise of 0.2 percent well below expectations of 0.4 percent; the industrial production also declined by 1.3 percent last month, the biggest fall since January 1982, and the university of Michigan?s preliminary consumer sentiment index was 75.4, below analysts? forecasts of 80.

Concern were raised by traders as to whether the Fed?s intention to tighten monetary policy would continue despite the impression that inflation seemed to be contained at present. However, the greenback recovered despite bearish US economic data towards the end of the week fuelled by the hawkish minutes of the US Monetary Policy setting meeting on 20 September. The minutes gave clues as to the future move of the US interest rates.

Yen struggles

The US currency, towards the end of the week, was bolstered by a poor euro sentiment consequent to the loose coalition between Germany?s main parties. The main fear in Europe seemed to be that the coalition might bring a halt to or dilute important reforms in Europe?s largest economy. The dollar traded at MUR 30.55 and the EUR at MUR 36.79 as against MUR 30.52 and MUR 36.86 respectively last week.

The dollar rose to a two-year high at around 115.35yen due to the unstoppable demand by Japanese investors for higher-yielding US denominated assets.

Higher interest rates burnished the allure of foreign bonds and attracted Japanese investors. In fact, the latter bought foreign bonds to the tune of 1.5 trillion yen as against the purchase of only 117.5 billion yen worth of Japanese bonds tilting the balance in favor of the higher yielding US dollar assets. Yesterday, the yen was sold at MUR 26.68 as compared to MUR 26.93 last week.

The Sterling hit a 10-week low of $ 1.7444 in the last week?s trading session. The Britain?s trade deficit for the month of August unexpectedly widened because of heavy payments by insurance companies on account of the Hurricane Katrina. Later the Sterling derived support from the hawkish comments by members of the Bank of England hinting that the interest rate could be stable for the present; hence, undermining the idea of a cut in the near future. The traders were awaiting clues to determine the direction the pound would take after the release of various economic data.

Yesterday, the Sterling was trading at MUR 53.61 as against MUR 53.60.

MAJOR DATA/EVENTS THIS WEEK :

■ Wednesday 19 October : US Mortgage index, EZ Ind prod,

■ Thursday 20 October : US Jobless claims, GB Retail ,

■ Friday 21 October : GB GDP data,

■ Monday 24 October : EZ ECB c/a, EZ Invest flow,

■ Tuesday 25 October : US Redbook

Contribution by HSBC