The first policy-setting meeting of the Federal Reserve Chairman Ben Bernanke marked the start of a new style slightly different from that of Alan Greenspan. The dollar, nevertheless, bounced higher, pausing momentarily only on concerns that some central banks might be readjusting their currency reserve portfolios.

The FED raised rates for the 15th time in a row pushing the US borrowing rates by a quarter percent to 4.75 percent. In his accompanying statement, Bernanke stated that additional hikes ‘’may be needed’’. Immediately, the greenback was propelled to new highs against the European currency. After the knee-jerk reaction following the post-meeting statement subsided, the market stuck back to the belief that no substance was noted to spark a sustained rally in the US currency.

On Thursday, however, the dollar racked its biggest loss of the week when news hit the market that some central banks had started to re-calibrate their reserves and diversify into other currencies. A gloomy structural backdrop for the dollar was highlighted, when rumor had it that the United Arab Emirates would convert roughly $23 billion into euro. To top it off, many analysts believed that China had embarked itself on a policy to reduce its capital reserve accumulation; hence, would acquire US dollar denominated assets at a decreasing pace. With these news stacking up, concerns immediately mounted that the United States may fail in its attempt to attract enough foreign capital flows, particularly from China, to square off its massive trade deficit.

However, a cool breeze swept the dollar back to its feet when a slew of economic data reinforced the general market view that the Federal Reserve would increase interest rates at least one more time this year. Looking forward in the week, market analysts were girding themselves for a batch of data that could tell a lot on the future path of the currency.

Against the Mauritian rupee, the dollar was trading at MUR 30.959 compared to MUR 30.959 last week.

The British currency had quite a hard week as investors weighed the possibility of a rate cut in the UK’s interest rates against a rate rise in the US, the eurozone and in Japan. A batch of weak data nurtured the concern of a possible interest rate cut scenario from the current 4.50 percent despite many analysts forecast steady rates. The GFK consumer confidence added to the Sterling woes when the reading came out at –7.0 compared to the forecast of –4.0.

<B>Eurozone growth above expectation</B>

The manufacturing sector expanded at the weakest pace in seven months. In addition, investors had not completely forgotten the weak mortgage lending data and the budget deficit report of the previous week. In stark contrast, growth seemed to be going above expectation in the eurozone. In the meanwhile, Jean-Claude Trichet stated that the ECB was “very, very serious’’ about maintaining price stability, fuelling bets for a 25 basis point rise in the eurozone interest rates in May.

Yesterday, the pound was trading at MUR 54.32 as against MUR 54.54 last Tuesday.

Yen trading was erratic as a result of the commercial demand related to the financial year winds down. The Japanese currency fell as core consumer price index climbed by only 0.5 percent against market expectation of 0.6 percent rise. However, the yen quickly recovered as speculation ran rampart that the Bank of Japan would raise interest rates by the third quarter. Disruptions in the market were also caused by last minute orders from Japanese companies. According to analysts, Japanese investors would resume investing in foreign assets at the start of the new financial year. Actually unhedged buying of foreign bonds could be quite profitable especially in high yield currencies.

Yesterday, the Japanese currency was offered at MUR 26.77 compared to MUR 26.75 the previous Tuesday.

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