The Bank of England penchant for surprise should not be undermined as it shockingly raised British rates of interest to 5.25 percent in the middle of the week. Analysts expected that UK’s borrowing cost would remain on hold this month with an anticipated interest hike in February or in March. Many analysts got taken off guard and they believed that the BoE’s move was a pre-emptive strike ahead of inflation data. Many traders had started to re-position themselves for an eventual leg higher than the psychologically key $ 2 pound level.

The week actually did not started well for the pound. It hobbled weakly around, slipping against the dollar when data showed that the UK’s trade deficit in November were bigger than previously expected. The UK trade gap widened to 7.19 billion pounds, more than analysts had expected. In fact, negative Sterling sentiment persisted throughout the day when US data showed the contraction of the US trade deficit. Against the Mauritian rupee, the Sterling was trading at MUR 67.73 yesterday as compared with MUR 66.77 a week earlier.

The yen sufferings still persisted due to its low yielding status even as investors saw the odds tilting in favor of the Bank of Japan raising rates at it next policy meeting this week to 0.5 percent. The central bank chief economist, Hideo Hayakawa, helped drive benchmark Japanese government bond yields to two-month highs during the previous session by saying that consumer spending should pick up this year and that forth-quarter growth would be solid. Against the Mauritian rupee, the yen was trading at MUR 28.93 as compared with MUR 29.22 a week earlier.

<B>Vassan Caleemootoo Contributed by HSBC</B>