The dollar felt the heat briefly when the US Capitol office building was evacuated as an alarm indicated the possible presence of a nerve agent. The scare pushed authorities to quarantine over 200 persons for at least three hours. As the news broke out investors were quick to dump the greenback. They promptly bought it back as tests results hosted in the US Capitol building came out negative.

The dollar flexed its muscle throughout the week and rose against most major currencies. The US currency hit five-week high against the euro and the Sterling after the former Fed chief, Alan Greenspan, commented on the bullishness of the US economy at a Lehman Brothers-sponsored events. He further added that the market might be underestimating how high the US interest rates might go, sources said. In another presentation to some hedge fund managers, Alan Greenspan indicated that short-term interest rates might move higher than what was expected by the market. In the absence of solid economic data and listless trading sessions, Greenspan?s comments gave the dollar story legs, diverting market focus away from weak commodity prices.

Last Thursday the dollar was narrowly mixed as it reacted marginally to the US long bond auction. Market talked of strong foreign appetite for dollar-denominated assets, but the demand was surprisingly weak. The first auction of the US Treasury 30-year bonds since 2001 sold only $14 billion at a high yield of 4.530 percent. In the 10 prior 30-year auctions, bids were drawn 2.25 times the amount of the offer, compared to 2.05 times for this auction. Indirect bidders who embraced customers of primary dealers and foreign central banks, bought $9.07 billion or approximately 64.8 percent of the total amount. This did not dent the bullish dollar but traders were cautious on placing large bets as the US trade deficit might dampen the US economic outlook and cause the market to refocus on the US trade gap. However, the swelling of the US trade deficit to a record level of $725.8billion for the year ended December 2005 managed to create only a momentary turbulence for the buoyant dollar.

The market is now eyeing Federal Chairman Ben Bernanke?s congressional testimony this week to gauge the future path of the US interest rates.

Against the Mauritian rupee, the dollar was trading at MUR 30.848 compared to MUR 30.818 a week earlier.

The Sterling was battered for most part of last week trading sessions. A series of bearish data plagued the pound and cast shadows on the interest rate outlook in the UK. Despite British like-for-like retail sales climbed up for the past three months, the British Retail Consortium predicted gloomy days ahead. The lobby group commented that the increase in sales of 0.2 percent was meager especially following the increase of 2.6 percent in December. British manufacturing output rose by 0.3 percent in December but fell by 2.2 percent on the year. Furthermore, Britain trade gap hit record level for the year ended December 2005. Indeed December?s global goods trade gap rose to 6.06 billion pounds, above economists? forecast of 5.6 billion pounds. According to analysts, these figures were weak but not weak enough to be the catalyst for a rate cut. As expected the Bank of England did keep the rate uncut at 4.50 percent. The Sterling became somewhat bubbly as news of take over biding for British firms hit the market. This basically meant that there were prospects for cross-border investment flows into the UK. In a takeover-related news, Dubai Ports World declared victory in a $6.8 billion pound bidding war for UK ports group. In addition, Investment fund Star Capital Partners had been rumored to be bidding for British Airport operator BAA Plc.

Against the Mauritian rupee, the Sterling was trading at MUR 53.95 yesterday as compared with MUR 54.16 a week earlier.

The yen held on to its gains as the Bank of Japan started its two-day policy meeting, reviving speculations that the central bank could dismantle its quantitative easing policy which aimed at flooding the banking system with cash and kept interest rates to virtually zero. As expected by the market, the Bank of Japan did keep the interest rates unchanged by a 7-2 vote but did give clues that the ultra-loose monetary policy might be ending soon.

The yen was sold at MUR 26.43 as compared to MUR 26.08 last week.

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

<B>Wed 15 Feb US Mortgage Indx, </B>

Cap Net flows

<B>Thurs 16 Feb US jobless claims </B> JP GDP

<B>Friday 17 Feb US Michigan</B>

Prelim, PPI

EZ Ind Prod

<B>Mon 20Feb </B>

<B>Tues 21 Feb

Contribution by HSBC</B>