The dollar traded mixed sentiments throughout most of last week?s sessions, as market traders and speculators held their breath ahead of the Federal Reserve meeting yesterday. Market analysts kept pondering whether the Federal Reserve policy meeting would give clues as to an imminent stop to an 18-month US campaign to tighten monetary policy.

According to analysts, the Federal Reserve would bump up the US interest rates to 4.25 % from 4.0 %. However, market opinions were mixed as to the wording that the Federal Reserve would use in its post-meeting statement. In the past meetings, the Central Bank indicated that it?s tightening of borrowing costs were accommodative.

In other words, it pointed out that most likely the interest rates differential between the dollar and the euro would widen. However, a major turning point in the dollar bullishness could be reached if the interest rates in the US were to peak or come close to peaking. In fact, the market had slowly but nevertheless reacted as the technical and the fundamental sentiments for the greenback deteriorated in the past trading sessions.

The dollar slipped against the euro despite better than expected US Consumer Confidence report. Furthermore, The University of Michigan?s December US consumer sentiment index was 88.7 up from a November reading of 81.6. Market analysts had forecasted an index of only 85.5. Despite the market?s bias towards tightening long dollar exposure, a shift in market psychology was noted, as traders refrained from putting fresh bets on the dollar. Against the Mauritian rupee, the dollar was trading at MUR 30.778 yesterday compared to MUR 30.757 a week earlier.

<B>Weak data subdued the pound</B>

The sterling started the week on a dovish note bowing to wide-ranging dollar strength. Market analysts predicted continued dollar strength as the market drawn into the traditionally quiet Christmas season. Traders were expecting increased volatility and wide swings in trading trends. The pound got a breath of fresh air when official statistics released showed that Britain?s trade deficit with the rest of the world narrowed more that expected in the month of October. In addition, trade balance in oil swung to a small surplus. The trade deficit gap narrowed to 4.55 billion pounds in October compared to a 5.6 billion pounds in the prior month; beating economists? expectations of 5.3 billion.

<B>Fall of the Japanese currency</B>

Weak dollar sentiment towards the end of the week kept pumping the Sterling higher. However, the pound lost ground against the euro as a raft of bearish economic data suggested that the UK?s economy looked murky and that inflation was tepid. British factory gate inflation slowed to its lowest in a year and a half. Output prices fell 0.2 percent for November when compared to October. On the other hand, input prices went up by 1.4 percent for November compared to economists? expectation of a 0.2 percent fall. Against the Mauritian rupee, the Sterling was trading at MUR 54.80 yesterday as compared with MUR 53.70 a week earlier.

The yen tumbled to a fresh low as Japanese investors dumped the currency for high-yielding ones. In addition, the woes of the Japanese currency does not seem to be ending anytime soon as the Bank of Japan stated that it was not near to ditching its extra-loose monetary policy. Against the Mauritian rupee, the yen was trading at MUR 25.87 as compared with MUR 25.58 a week earlier.

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

● <B>Wednesday 14 December</B> US Mortgage Indx, Int?l Trade

● <B>Thursday 15 December</B> GB Retail, US Jobless claims, Cap net Flows, Jobless Clms, JP BoJ meeting

● <B>Friday 16 December </B> JP BoJ decision

● Monday 19 December EZ Ind Prod

● <B>Tuesday 20 December</B> US Redbook, PPI

<B>Vassan Caleemootoo

Contribution by HSBC</B>