The dollar did not cease to impress as it picked itself off the ground. All did not start well for the greenback despite the Federal Reserve kept US interest rates on hold as expected. The Federal Reserve’s accompanying statement told a dovish tale of cooling down of the US housing market.

A knee jerking US dollar selling started immediately after the Fed’s statement. Investors who anticipated a more hawkish stance of the FED on inflationary pressures were disappointed. In mid-week, the dollar clawed back some grounds against the euro after the US trade deficit in October fell to its narrowest since the same month last year. US retail prices for November came out robust, spurring hefty dollar buying. Yields on the benchmark 10-year notes rallied in the wake of the retail sales data hinting at a bond market that had undergone a sea-change of expectation capable of impacting the forex market eventually. Analysts felt for the first time that the US economy was not as bad as initially thought of. This line of thinking pushed traders to cover short dollar positions ahead of the holiday periods. However, in the backdrop, structural problems still weigh down onto the dollar.

The greenback got yet another boost when employment data showed that the number of people claiming unemployment benefits fell more than that economists had forecasted. In the meantime, fed funds futures experienced a sell-off and chances of a fed rate cut by the end of the first quarter 2007 dropped to 10 percent from 20 percent a week earlier. Furthermore, US treasury prices fell to approximately 4.59 percent, pushing to a three week high, the yield on 10-year note.

Despite soft readings on inflations and industrial production numbers, capital inflows pointed out that investors’ appetite for US denominated assets had not faded. Against the Mauritian rupee, the dollar was trading at MUR 33.459 compared to MUR 33.368 last week.

Possible hike of UK interest rates</B>