Technical –based trading and order flows dominated most part of last week trading price actions due to a slew of economic data benefiting largely the US dollar. The US currency flew across the board supported by investors who were still betting that the Federal Reserve would not let the dollar down.

The US currency was bolstered when data showed that unit labor costs in the second quarter rose by 5 percent, the largest gain since the third quarter of 2000. Despite analysts believed that the chance for the Fed to raise rates was very slim, persistent inflationary pressures could push the Fed to resume its tightening campaign. In fact, Federal fund futures suggested that the market was pricing a 10 percent chance that the Fed might hike up interest rates again this month after pausing in August. In mid-week, the dollar got some life breathed into it, when the San Francisco Federal Reserve Bank President Janet Yellen, stated that the Central bank’s bias should be toward further interest rate increases. Immediately, the dollar vaulted to a week high against its European opponents. Market players betting against the greenback were spooked when the second-quarter labor costs spiked up giving clues that inflation in the US was but a dormant phenomenon. The US dollar traded at MUR 32.703 yesterday, as opposed to MUR 32.602 last week.

<B>Japanese interest rates increase to be gradual</B>

The yen went thru a roller-coaster ride, during last week trading session, hitting a month high against the US currency. In fact, the Japanese yen buoyed to a month high after traders rushed for a round of short-covering ahead of key events such as the Bank of Japan’s policy meeting and the meeting of the Group of Seven finance ministers. Solid capital spending data for Japan, urged market players to unwind huge short yen positions that were built mainly due to dovish outlook on the economy after softer than expected consumer prices data for the month of July. The capital spending data suddenly revived expectation that the Bank of Japan might boost interest rates again. Many investors were wary that speculation could run like wild fire among the dry bush when it came to further appreciation of the Chinese yuan before the G7 summit. However, toward the end of the week market players who were betting on a Bank of Japan rate rise before the end of the year were disappointed when the Bank of Japan’s Governor,Toshihiko Fukui, said that interest rates rise in Japan would be gradual. The yen was sold at MUR 28.38 as compared to MUR 28.73 last week.

Sterling had a rough week feeling the heat of both the turbulences surrounding the leadership of British Prime Minister and the release of a batch of bearish UK’s data.

Analysts were quite unsure as to whether Tony Blair would step down as British Prime Minister due to the string of resignations in the junior ranks of the government. Tony Blair stated in a televised statement on Thursday that the annual labor party conference later this month would be his last as a leader, but did not state clearly his date of resignation. Despite data from the housing industry was robust, data from other sectors were mixed. The Chartered Institute of Purchasing and Supply services business index slipped to a nine month low of 56.7 from 57.9 in July. The GFK consumer confidence fell sharply and the manufacturing PMI hit a five-month low in August. The Sterling was traded at MUR 61.94 as against MUR 62.89 last week.

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

<B>Wednesday 13 Sep. : </B>

US mortgage, Fed Budget

JP BoJ minutes

<B>Thursday 14 Sep. : </B>

US Jobless claim

GB Retail Sls

<B>Friday 15 Sep. :</B>

EZ Foreign Trade

US CPI

<B>Monday 18 Sep. :</B>

US C/a, Net Cap Flows

<B>Tuesday 19 Sep. : </B>

US Redbook, PPI

<B>Vassan Caleemootoo

HSBC Mauritius Treasury and Capital Market</B>