The greenback shaped up to a positive week as a slew of powerful economic indicators that reinforced market?s expectations for higher inte-rest rates. Durable goods order for October, November brought consumer confidence, and October new home sales bettered expectations.

Orders for durable goods rose by 3.4 percent compared to market expectation of only 1.1 percent. The consumer confidence index report, stimulated by mild oil prices, predicted a season where consumer would shop till they drop. In November, the index surged to 98.9 compared to a reading of 85.2 in October and beating market?s expectation of 90.0. New Home sales, on the other hand, rocketed to 1.424 million annual units in October, up 13 percent in the month.

Strong US economic fundamental and rising rate yield kept the dollar sentiment up high. Despite European Central Bank?s (ECB) uplift of its refinancing benchmark rate by 25 basis points, the dollar?s strength did not feel a dent. The hike in the euro zone interest rates should burnish the allure of some short-term euro zone assets.

Traders, however, got rid of long euro positions as soon as the ECB President Jean-Claude Trichet reiterated his comments of last month that the Central Bank?s first interest rate increase in five years would not be the first in a series of a prolonged tightening cycle.

Furthermore, the ECB also mislaid the word ?strong vigilance?? in regards to price stability in its opening statement. This led market analysts to believe that the ECB was not too concerned about inflationary pressures in the euro zone.

As opposed to the US Federal Reserve, which stuck to its continuing tight monetary policy, Trichet?s comments felt like a cold shower for euro fans and dragged the common currency further down. On the other hand, the Federal Reserve showed no sign of fatigue and is expected to increase US borrowing costs by 25 basis points this month and the next.

Against the Mauritian rupee, the dollar was trading at MUR 30.757 yesterday compared to MUR 30.7565 a week earlier

The Japanese yen was hammered by the US dollar as it sank to a 32 month low and to an all-time low against the euro as Japanese officials signaled in the G7 meeting their comfort with letting the currency slide. During the G7 meeting where Finance Ministers and central bankers from the world leading economies met, the yen was not an issue. This led market traders to believe that the tumbling of the Japanese currency was of no concern to these officials.

<B>UK home prices under scrutiny</B>

Speculation was running rampart suggesting that Japan might feel the jitters as the exodus of the yen into other high-yielding currencies was compounding the yen weakness. As interest rates in the US and in Europe were on the rise, the Bank of Japan was not near to ditch its extra loose monetary policy.

In fact, Finance Minister Sadakazu Tanigaki stated, after the G7 meeting, that the yen fall thru 121 yen against the dollar were purely factors of economic fundamentals. In addition, Bank of Japan?s Governor Toshihiko Fukui commented that the yen weakness was consistent with the Central Bank?s policy of fostering growth.

The yen has already pierced key chart levels and traders are showing keenness in selling the yen.

Against the Mauritian rupee, the yen was trading at MUR 25.58 as compared with MUR 25.96 a week earlier. The Sterling started the week on the wrong footing with a batch of miserable economic indicators. UK housing prices fell from 3.3 percent to 2.4 percent in November.

In addition, the Confederation of British Industry retail sales for November came weaker-than-expected. According to currency analysts the UK home prices would be under scrutiny by investors in the coming months. The pound recovered somewhat against the dollar due mainly to euro pull as the ECB increased interest rates in the euro zone by 25 basis points.

Against the Mauritian rupee, the Sterling was trading at MUR 53.70 yesterday as compared with MUR 53.13 a week earlier.

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

■ <B> Wednesday 07 Dec</B>

US Mortgage refg,

■ <B>Thursday 08 Dec</B>

GB BoE rate

US Jobless claims

■ <B> Friday 09 Dec</B>

GB Trade

US Michigan Prelim

■ <B>Monday 12 Dec</B>

GB PPI Core

US Fed Budget

■ <B>Tuesday 06 Dec</B>

US Redbook, Fed Rates

JP Tankan

<B>Vassan Caleemootoo

Contributed by HSBC</B>