The greenback got massively empowered by bullish data that pointed out that the Federal Reserve was not near to cutting interest rates in the US. In fact, the FED?s last board minutes underlined its commitments to combat inflationary pressures.

Since the beginning of the year, the euro had gained on the dollar as expectations were rising that there would be more interest rates hikes in the euro zone as whereas a potential cut in the US was more likely.

However, as the US economy was showing dangers of heating up, expectation of a decline in interest rates had dimmed. The implied chance of the FED cutting rates in 2008 by 25 basis points had dropped by 50 percent. In the beginning of the year, futures traders had priced at least two cuts for next year.

Strong report on regional business activity together with hawkish US jobs and manufacturing data pushed more analysts to believe that the Fed actually might be more inclined to hike up interest rates in the US. Data showed that the US economy added 157,000 non-farm jobs in May.

The Institute for Supply Management survey, which showed its index of US factory activity, edged up to 55.0 from 54.7 in April. The dollar soared when news hit the market that US economic growth in the second quarter might outpace that of the first. In addition, sign of a pick up in inflation pushed the momentum of dollar buying further.

Central banks in the UK, Australia, and New Zealand were widely expected to keep interest rates in their respective countries on hold at this week?s meeting. However, a surprise hike in Britain and in New Zealand might always be possible. In the euro zone, the European Central Banks would be expected to raise rates by 25 basis points. Analysts, on the other hand, were expecting the ECB to hold on the rates for a few months, after hiking it up by 25 basis points tomorrow, to evaluate its impact on the euro zone economies.Against the Mauritian rupee, the dollar was trading at MUR 31.994 yesterday same as a week earlier.

The tumbling in China?s benchmark equity index, due to a surprise share-trading tax hike, did nothing to curb the fall of the Japanese yen. In February the Japanese yen got a sudden boost when the Shanghai Bourse dropped, prompting spooked investors to go ahead and unwound carry trades. This time market players reacted calmly and the rebound in global stock market encouraged traders go resume carry trades.

According to analysts, it would be just a matter of time before the Japanese currency to hit the psychological level of 122.00, which would be its highest since 2002. Against the Mauritian rupee, the yen was trading at MUR 26.28 as compared to 26.34 same as a week earlier.

Sterling started the week flexing its muscle against the greenback. Strong economic data released did nothing to dent market expectation that the Bank of England might be hiking up rates again this year. Data released earlier from the Nationwide Building Society showed that housing prices climbed by 0.5 percent, just under economist forecast of 0.6?s percent increase. The Confederation of British Industry?s distributive trades survey pointed out that retail sales had grown slightly more than that of April. In addition, hawkish comments made by Monetary Policy Committee member David Blanchflower supported expectations that more hike would happen in Britain. Toward the end of the week, the pound vaulted to hit close to its highest level this year as investors were borrowing the yen to buy the British currency in carry trades. Against the Mauritian rupee, the Sterling was trading at MUR 63.76 yesterday as compared to MUR 63.47 a week earlier.

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