The dollar gained against the euro in markets mostly driven by technical trading while nervousness still persisted about the shakeout in emerging markets. In addition, investors got rattled when the World Health Organization (WHO) reported the possible human-to-human transmission of bird flu in Indonesia.

The US currency edged up against the euro as traders started to unwind short dollar positions ahead of the US long weekend. The momentum increased when the WHO believed that some limited human-to-human transmission of bird flu had occurred when an Indonesian man died of bird flu after nursing his sick son who caught the exact same disease. The WHO later on, in an attempt to calm down fears of a pandemia, emphasized that the virus had not mutated enough to be easily transmitted among humans.

Frenzy in emerging markets continued to be a concern among investors who sought to buying back dollars. Mexico?s stock market lost nearly 1.5 percent while Brazil?s Bourse slid more than 1 percent fuelling concerns that the emerging markets woes were not over yet.

However, towards the end of the week a batch of mixed data pressured dollar bulls. US economic growth reading failed to bolster expectations for a June interest rate increase. GDP for the first quarter rose 5.3 percent that was below analysts? expectations of a 5.7 percent. The US currency also weakened after Russia stated its intention to invest 45 percent of its $ 71.5 billion stabilization fund ? designed to mob up excess cash earned from oil sales ? in euros. Overnight the specter of countries diversifying their reserves away from US denominated assets resurfaced and the market refocused on the huge US current account deficit.

The US dollar traded at Rs 30.98 yesterday same as last week

The pound was quite bearish against a resurgent dollar throughout the whole of last week despite support lent by news of mergers and acquisitions. Dutch Phillips Electronics agreed to buy British baby-feeding product maker Avent for £460 million in cash as the conglomerate wanted to expand its appliances business. The French bank Credit Agricole was considering a takeover bid for UK bank Alliance & Leicester, which analysts believed could start a £6 billion bidding war.

However, the poor pound lacked impetus in its rally especially after a string of mixed data cast shadows on the UK?s economic outlook as well as the future path of the interest rates. The British confederation of British Industry stated that the manufacturing orders eased in May when compared to April. Another knock on the head came when mortgage approval data for April edged down, the first annual decline in nine months. Total home approvals was 64,683 in April compared to 85,698 in March.

The Sterling was traded at MUR 58.38 as against MUR 58.71 last week. The Yen lost ground against the dollar after upbeat housing data tilted expectations toward the Federal Reserve raising interest rates in June. Another increase in interest rates would help the dollar maintain its yield advantage over the Yen. As volatility spiked up across assets, investors cut their big bets against the US currency, which meant that the greenback had rallied. However, the Yen bounced back in thin trade ahead of market holidays in both UK and the US as Japanese exporters started selling the dollar. The yen was sold at MUR 28.00 as compared to MUR 28.06 last week.

Major data and events this week :

Thursday 01 June : US Jobless Clms EZ GDP Friday 02 June : US Durables

Vassan CALEEMOOTOO HSBC Mauritius Treasury and Capital Markets