The nightmare continued for dollar bulls as the European common currency flew on a hacking spree hunting down the US currency. Bearish dollar sentiments persisted spooking investors who fled to seek haven in the euro and the pound.

Federal Reserve Chairman, in a meeting with business leaders in New York, gave no comfort to panicking traders and investors. He stated that the US economy was poised on a gradual growth and that ??uncomfortably high?? core inflation would come down. The US dollar got its feet chopped off when the governmental report for October showing that orders for durable goods and equipment was released showing an astronomical 8.3 percent decline. Red lights were flashing and investors and traders went ballistic. They rushed to close out long dollar positions vaulting the euro to $1.3180. Following the durables and equipments orders? data, another indicator hit the red zone. The US short-term interest rate futures boosted the chance of an interest rate cut by the FED in the first half of 2007 to 50 percent.

The brittle dollar got a brief respite when the US economic growth was better than estimated and warnings from European officials about the euro?s recent surge. The US economy expanded at 2.2 percent per annum better than the expected rate of 1.6 percent. On the other hand, French Prime Minister Dominique de Villepin stated that the euro rise would negatively impact European competitiveness. Furthermore, French Finance Minister Thierry Breton, added that wild swings in currencies would not prophesize anything good and he reiterated a call for collective vigilance.

<B>The pound sterling close to 2$ level</B>

Toward the end of the week, the bottom fell out on the dollar, which hit a 20-month low against the euro following the Supply Management?s survey of national manufacturing in November. In fact, the reading came out at 49.5 showing a contraction as opposed to an expected expansion. Concerns were compounded when the business activity in the Midwest shrank in November for the first time in 3-1/2 years. Against the Mauritian rupee, the dollar was trading at MUR 33.328 compared to MUR 33.307 last week.

The high-yielding Sterling was among the biggest winner of last week trading. Actually, speculations ran wild whether the fashionable currency would hit the $2 psychological level. The pound reached a few pips of its highest level since September 1992 just before England had to quit the European Exchange rate mechanism. The pound seemed unstoppable and the scare set in after the key chart level of 1.9550 was broken. The pound moved tantalizingly close to $2 level towards the end of the week and hit $1.9847, fuelled by inflation-busting Bank of England rates hikes and inflows from mergers and acquisitions, and central banks reserves purchase. Against the Mauritian rupee, the Sterling was trading at MUR 67.32 yesterday as compared with MUR 66.04 a week earlier.

The Japanese got a boost from surprisingly robust Japanese industrial output data that bolstered expectations that the Bank of Japan might be bumping interest rates again in the next few months. Japan?s industrial production rose 1.6 percent in October from the previous month. However, many analysts believed that the yen gain might be temporary given the craving of Japanese investors? for higher yield foreign assets.The yen was sold at MUR 29.90 as compared to MUR 29.73 last week.

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

<B>Wednesday 06 Dec </B>: US mortgage

<B>Thursday 07 Dec </B>: EZ ECB rateUS jobless ClaimsGB BoE rate

<B>Monday 11 Dec</B>: GB PPI, Trade

<B>Tuesday 12 Dec </B>: US Intl? Trade, Fed Budget, Fed rate

<B>Vassan Caleemootoo

Contributed by HSBC</B>