The US dollar leaped against the euro pushed by geopolitical concerns and sharp declines in oil and commodity prices. These added touches of volatility during an otherwise quiet trading week.

Crude oil futures toppled to a seven-month lows below $60 a barrel, heaving gold down nearly $20 per ounce. Many commodity currencies followed suit as they also got hammered. From a bird eye view, the greenback navigated in tight waters as many traders yearned for events that would provide fresh clues as to the direction the currency market would take.

The US dollar shot up after a sharp upward revision to US jobs growth was made. Investors shrugged off the weak data of last month and started placing fresh bets on the US currency. In a communiqué, the US labor Department stated that it had understated jobs growth in the year through March. According to economists, a tight upward labor market would likely keep an upward pressure on wages and inflation, minimizing the chance that the Federal Reserve would cut interest rates.

<B>The greenback at its highest since mid-July</B>

The greenback digested the revision and popped up to $1.2573 against the common currency. The US treasury yields rallied as well together with two-year note. The latter, which tend to be very sensitive to expectations of Fed interest rates moves, hit its highest since mid-July. Although the rate futures still reflect a view that the FED would cut rates in 2007 to shore up a sluggish economy, the implied chance for a rate cut this year was close to negligible. The US dollar traded at MUR 32.864 yesterday, as opposed to MUR 32.733 last week.

The Sterling rallied across the board on the expectation that the Bank of England would be raising interest rates in November. An upbeat survey on British manufacturing activity did reinforce that speculation despite data showed a fall in British mortgage equity withdrawal in the second quarter. State street said, in a note to clients, that the Bank of England policy members would judge the state of the economy through economic data. In fact, the batch of economic data that were released came out to be pretty robust and were thus seen as being sterling supportive. In addition, State Street stated that the 60-day rolling correlation between daily percentage changes in the pound’s effective exchange rates and changes in year ahead interest rate expectations, as measured by the 4th short sterling contract stood at 0.29. This was the highest since March this year.

In the middle part of the week, the pound felt under the pressures of residual disappointment when the Bank of England left the interest rates constant. Investors shrugged off robust UK’s house price, service sector and retail figures to sell the pound. The Sterling was traded at MUR 62.37 as against MUR 62.79 last week.

The yen went through increased selling pressures during the past week as tensions mounted over North Korea’s nuclear ambitions. Pyongyang stated that it would conduct its first nuclear test, pushing South Korea in a state of heightened security alert and the United States, France, and Japan to urge the UN Security Council to respond. Nervous traders sold out the yen especially when the interest rates on the Japanese currency would rise only slowly. The yen was sold at MUR 28.13 as compared to MUR 28.39 last week.

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

<B>Wednesday 11 Oct : </B>US mortgage,Jobless clms

<B>Thursday 12 Oct : </B>US Intl Trade

<B> Friday 13 Oct : </B> JP BoJ decision

Monday 16 Oct : </B>GB PPI