The dollar made its come back on the scene after being hammered by worries about the US subprime mortgage crisis. Investors were focused on US economic data in trying to foretell the possible impact of the US credit market turmoil overflowing onto other vital sectors of the economy.

Intra-day and short-term traders were cautious, closing their bets against the US currency when the euro failed to cling to gains after reaching record highs of $1,3850. The dollar, later in the session, regained its composure after the European common currency fell under a bout of profit taking. Many analysts believed that since no major US data were scheduled to be released, traders would most likely be watching equity, credit and bond markets for direction.

According to analysts, if problems stemming from the subprime market spread to other sectors, foreign demand for US corporate debt, a major source for trade deficit, could waver and knock down the dollar.

In mid-week the dollar rallied, posting its biggest gain in a year against the Euro in a technically driven market. Investors were seen shrugging off soft US existing home sales data to place fresh bets on the dollar. Private-sector report showed that US existing home sales in June were the lowest since November 2002, despite median price rose for the first time since 11 months. On the other hand, the dollar index, a broad measure of the greenback against a basket of six major currencies, bounced back to 80,00 after hitting a 15 year low.

However, all hells broke loose when stocks fell sharply and investors flew to safe havens. But the panic did not last long and towards the end of the week, the US currency rebounded, after a preliminary estimate from the government showed that the US economy grew at its fastest pace since the first three months of last year.

However, many analysts still believe that the US dollar rally might lose steam especially when concerns existed that the US housing market woes might spill over onto other key sectors of the economy and slower economic growth. Against the Mauritian rupee, the dollar was trading at MUR 31.782 yesterday compared to MUR 31.833 a week earlier.

<B>Anxious Investors</B>

Sterling started the week bullying all major currencies. It vaulted to its highest level in 26 years to $ 2.06 against a powerless dollar while expectations ran rampart that interest rates in the UK would continue to rise. Data released last week showed that the British economy had grown faster than expected supporting the belief that UK?s borrowing cost might go up from the current 5.75 percent.

UK?s rate of interest was already the highest among Group of Seven countries and some analysts predicted that the Bank of England could go as far as hiking interest rates to 6 percent by year end. On the merger and acquisition side, Barclays Bank raised its offer for ABN AMRO to 67.5 billion euros. Sterling impetus started losing steam as the greenback rebounded. Investors were anxious, wondering whether the weakness in US credit and housing could affect other countries and economies.

This concern encouraged investors to close short dollar positions and dump risky assets; hence pushing the pound down to 2.0500 from its 26-year high of $2.0655.

Despite British Chancellor of the Exchequer Alistair Darling stated that he would support any decision of the BoE to keep inflation under control, market players believed that another rate hike would be unlikely due to softer-than-expected UK housing data.

Against the Mauritian rupee, the Sterling was trading at MUR 64.59 yesterday as compared to MUR 65,72 a week earlier.

The yen had a boost in mid-week surging to a three-month high against the dollar as spooked investors fled risky assets due to the growing problem in credit markets financed by the low-yielding Japanese currency.

Credit spreads widened, stocks fell sharply, and US benchmark Treasury yields tumbled in a flight to quality that prompted traders to cover short yen positions. The spillover to the currency market got nasty after the US currency fell below its 200-day moving average against the yen, a long-term technical chart signal, triggering a wave of automatic orders to sell dollars and buy yen.

Against the Mauritian rupee, the yen was trading at MUR 26.73 as compared to 26.42 same as a week earlier.

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

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

<B>Wednesday 01 Aug </B> US Mortgage index <B>Thursday 02 Aug </B> US Jobless Claims, DurablesGB BoE rate EZ ECB rate <B>Friday 03 Aug </B> <B>Monday 06 Aug </B> <B>Tuesday 07 Aug </B> US Redbook, Fed Rate