The dollar muscled up a ravaged euro and hit a 2-year high in last week’s trading. Analysts continued to see a bullish dollar that withstood a batch of soft data: US jobs growth, lower US bond yields relative to the euro zone, and even a record US trade gap. The market had refocused itself on the prospect of some further rise in the US Federal Reserve interest rates. Insofar, many investors had been lured by US-dollar denominated assets and the 4 percent overnight US interest rate as compared to the 2 percent in the euro zone.

Consequently, the dollar rose to a peak of 1.1641 against the euro and it was only bouts of profit taking in the dollars that kept the euro afloat in the earlier part of the week. However, the euro crashed through key technical supports against the dollar as soon as the European Central Bank officials gave mixed signals on whether they would tighten monetary policy in the near term. As of Monday investors looked ahead to a hearing on Ben Bernanke’s nomination to take charge of the Federal Reserve. Most analysts expected Bernanke to push on with the Fed’s steady campaign of rising interest rates, but the market would watch closely for any change in tone from Alan Greenspan. In addition, investors would also be looking at the US October retail sales and producer price data.

British consumer price inflation

In addition, the constant surge of the dollar since August had forced option investors to re-adjust their hedges, whose payoff depend upon whether a strike price in the market had been reached or exceeded. Insofar those barriers in the euro had given poor resistance to the advances of a bullish dollar; hence, keeping volatility low. According to market analysts more barriers existed lurking all the way down to $ 1.15. Against the Mauritian rupee, the dollar was trading at MUR 30.69 yesterday compared to MUR 30.63 a week earlier.

The Sterling held steady against the dollar for the earlier part of the week as the market expected prospective investment flows into the UK. In fact, several European firms were contemplating and made bids to acquire UK firms. However, in the later part of the week, the Pound gave up its gains as a batch of weaker-than-expected economic data were published. British producer prices rose by only 2.6 percent compared to market expectation of 2.9 percent.

This week we would see the release of a slew of economic data, namely the British consumer price inflation, the retail sales data for October, the housing and labor markets for last month. In addition, the Bank of England would release its quarterly inflation report containing its latest growth and inflation forecast. These data would more likely hold clues as to the future path of the UK’s interest rates.

Against the Mauritian rupee, the Sterling was trading at MUR 53.44 yesterday as compared with MUR 53.36 a week earlier.

The Japanese yen lost approximately 8 yen in the past two months due to the immense appetite of Japanese investors for higher-yielding foreign bonds. In fact, Japanese investors grabbed a net 3.5 trillion yen of foreign debt in October--an increase of almost 400 % from the prior month. Neither Japan’s current account surplus of 6.5 percent in September nor the constant inflows of foreign capital into Japanese stock market managed to slow down the yen slide.

Against the Mauritian rupee, the yen was trading at MUR 25.98 as compared with MUR 26.19 a week earlier.

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

■ <B>Wednesday 16 Nov</B>

US Mortgage indx, CPI, Cap net flows

■ <B> Thursday 17 Nov </B>

GB Retails, EZ Ind Prod, US jobless claims, Ind Prod , JP BoJ meeting

■ <B> Monday 21 Nov </B> US Redbook

<B>Vassan Caleemootoo Contribution by hsbc</B>