The European common currency started the week manhandling the US dollar, gathering brutish strengths from robust euro zone data and dazzling comments from the European Central Bank’s officials. Dollar sentiments crashed as traders looked to other currencies to make profit.

The euro soared when the ECB officials gave hawkish statements that they would need to hike up euro interest rates in March to combat inflationary pressures. In addition, stronger-than-expected November industrial orders gave the euro a definite advantage over the US currency.

In the US, on the other hand, data showed that existing home sales fell more than what analysts forecasted in December. The decline was so big, the highest since 1989, that the euro shot up, reversing a brief fall sustained on a dovish German Ifo business sentiment survey. Actually the Ifo headline index slipped to 107.9 from last month figure of 108.7.

Towards the end of the week, The US currency got some life pumped into it. US housing and manufacturing sector data showed that the US economy was resilient, reinforcing the view that the Federal Reserve might hold interest rates steady at 5.25 percent this year instead of going for a correction as expected by the market. According to the US government report, new-home sales picked up in December after posting its biggest drop in 16 years in 2006.New orders for durables rose to 3.1 percent, better than what analysts had expected.

Interest rates futures on Friday pointed out that the FED would leave overnight rate unchanged until the next meeting and potentially for the whole of 2007. Against the Mauritian rupee, the dollar was trading at MUR 33.68 yesterday compared to MUR 33.60 a week earlier.

Sterling rose hitting a 14-year peak against the greenback above $1.99, challenging the psychologically $2 level as investors rushed to capitalize on the high UK’s interest rates. Despite British interest rates were at parity level with that of the US dollar, the hawkishness surrounding the British monetary policy committee members compared to the dovish interest rate outlook by the FED, made the pound very attractive compared to the greenback.

However, the relentless march towards $ 2 got suddenly capped when the minutes from the Bank of England showed that only five of its nine members voted for this month’s surprise interest rate hike. That news felt like a cold shower on super keen Sterling lovers. Immediately the pound nose-dived putting that tantalizing $2 level temporary out of reach. A survey among 51 economists showed that 30 expected UK’s rates to remain unchanged while 21 saw a hike to 5.5 percent this year. Interest rate futures were still pricing a 25 basis points hike this quarter but the chances for more hikes had waned away. Against the Mauritian rupee, the Sterling was trading at MUR 66.75 yesterday as compared with MUR 67.51 a week earlier.

The Japanese yen fell to record lows against major currencies last week after comments from the Bank of Japan Governor, Toshihiko Fukui, sent speculators back to the drawing board doubting whether the central bank would raise interest rates next month. Eschewed due to its low yield, the yen was seen hovering to four-year lows against the greenback. In an interview last week, Fukui stated that he believed that higher interest rates might support the Japanese economy but the central bank’s preference was to remain cautious as long as data were mixed.

The yen were kept under heavy selling pressures especially when deputy German economy minister Bernd Pfaffenbach stated that the yen economic fundamentals would not be a topic at the next Group of Seven meeting. Against the Mauritian rupee, the yen was trading at MUR 28.57 as compared with MUR 28.52 a week earlier.

Vassan CALEEMOOTOO</B> <I>Contributed by HSBC</I>