After 18 years of service, Alan Greenspan made his last decision as chairman of the Federal Reserve (FED) and increased US interest rates before stepping down and was replaced by Ben Bernanke. As the market expected, the FED lifted US borrowing costs from 4.25 percent to 4.50 percent and suggested that more increases were in the making. Immediately, the dollar buoyed across the board and traded with the bias that more Federal Open Market Committee meetings would mean more monetary tightening.

The next day US bond yield jumped as interest markets factored in another 25 basis points. Two-year treasury notes hit a five-year high to approximately 4.60 percent. According to analysts, incoming data would most unlikely lead to a downward trend to US rate expectations. A new batch of economic data showed that the US economy was well underway in its recovery phase. US factories expanded, shedding a certain optimism about the near term outlook of the economy.

The Institute of Supply Management?s monthly snapshot on manufacturing was at 54.8 in January above the 5.0 thresholds that split expansion from contraction. Construction spending data rose by 1 percent in December compared to the median forecast of 0.2 percent.

However, the dollar slipped momentarily against the euro as US chief intelligence, John Negroponte spooked the market by saying that al Qaeda was still plotting and preparing for attacks on the United States. Market reactions cooled down just after the Department of Homeland Security officials stated that they had no plan to change the level of its terror alert.

Market shrugged export orders

The dollar ended the week on the high note as a wave of dollar buying started when the January?s US job payroll growth were in line with market expectations. Against the Mauritian rupee, the dollar was trading at MUR 30.818 same as a week earlier.

The Sterling started the week on strong footing as news of a sterling-positive takeover speculation and an upbeat British manufacturing sector data for January were released. Britain?s manufacturing sector expanded, boosted by domestic demand despite export orders slipped. The market shrugged the export orders figures as speculation ran rampart that British bank Lloyds TSB was going to be taken over by Spain?s Banco Bilbao Vizcaya Agentaria.

Investors to buy US treasuries

These rumors were subsequently denied by sources familiar to the situation. Ultimately, Sterling sentiment soured when a report indicating a record number of individual insolvencies and home foreclosures for the month of December were released.

The pound ended the week trading softly as the market awaited the trade balance data to find fresh clues as to where the currency would be heading. Against the Mauritian rupee, the Sterling was trading at MUR 54.16 yesterday as compared with MUR 54.77 a week earlier.

The yen looked very bearish throughout most of last week sessions. As the greenback strengthened across the board, automatic buy orders were triggered around 118.20 yen and added momentum to the dollar rise. In addition, many institutional investors were on the market to buy some US treasuries as well as the revived 30-year bond. The yen was sold at MUR 26.08 as compared to MUR 26.38 last week.

Major data/events this week:

■ Wednesday 08 Feb US Mortgage Indx JP BoJ meeting GB Trade, BoE rate

■ Thursday 09 Feb GB Trade, BoE rate US jobless claims

■ Friday 10 Feb US Int?l Trade, Fed Budget

■ Monday 13 Feb GB PPI

■ Tuesday 14 Feb US Retail sales, Redbook