The dollar, in the absence of major US economic data, succumbed to a resurgent euro after coming from a three-day holiday. In fact, its fall was precipitated when news hit the market that the US military had planned an air strike on Iran.

With the decision of the Federal Reserve to leave US interest rates at 5.25, investors were looking for clues as to whether interest rates in the US would fall or remain steady. Fed Chairman, Ben Bernanke spooked investors by stating that inflationary pressures were easing reviving speculations that the FED might be cutting interest rates in the second half of 2007.

Towards mid-week, the dollar rose brieftly after the US Labor Department stated that the Consumer Price Index for January rose more than expected despite a dip in energy prices. This fuelled some parallel thinking that the US might be heading towards a ?Goldilocks?? scenario in which inflation pressures moderated with economic growth slowing down gently. The US currency?s strength lost steam, at the end of the week, as euro zone economic fundamentals were looking better than that of US fundamentals. A slew of German economic data came out robust boosting the case for higher interest rates in the euro zone. Against the Mauritian rupee, the dollar was trading at MUR 33.287 yesterday compared to MUR 33.448 a week earlier.

The debacle of the Japanese currency continued last week despite the Bank of Japan hike up interest rates to a decade-high of 0.5 percent from 0.25 percent. In fact, BoJ Governor Toshihiko Fukui reiterated that the pace of further monetary tightening would be slow. Japan?s ultra-low rates had encouraged players to use the yen as a source of cheap fund to buy higher-yielding currencies in the carry trades and encouraged domestic investors to seek out foreign denominated assets. Against the Mauritian rupee, the yen was trading at MUR 27.64 as compared to 29.16 same as a week earlier.

Sterling started the week on a positive note, rising from a six-week low against a basket of currencies. Actually, data released last week showed that British mortgage lending rose in January better than what economists had forecasted. Building society mortgage approvals hit record high while money supply growth continued to rise. The pound got hit when the Bank of England monetary policy minutes showed that only two out of seven BoE Monetary Policy Committee members voted for an increased in UK?s interest rates. According to analysts, the result was pretty much expected, but investors were hoping to find clues of near-term monetary tightening. Towards the end of the week, the pound got a boost from the hawkish comments of Monetary Policy Committee member Andrew Sentence who expressed concerns about inflationary pressures building in the UK?s economy. Against the Mauritian rupee, the Sterling was trading at MUR 65.88 yesterday as compared to MUR 65.86 a week earlier.

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

<B>Wednesday 28 Feb</B> US Mortgage, GDP

<B>Thursday 01 March</B> US Jobless GB Mortgage <B>Friday 02 March</B> GB GDP <B>Monday 05 March</B> <B>Tuesday 06 March</B> US Durables, Redbook EZ GDP

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