The US currency sickness did not fade as expectation rose that the Federal Reserve would cut interest rates at its next monetary policy meeting. This measure was intended at preventing the housing sector woes from seeping thru to other sectors of the US economy.

Despite, September?s job data helped to ease concerns about the health of the US economy, speculation that the FED would cut rates before the year-end did not go away. The US job report showed that the US economy added 110,000 jobs last month. Furthermore, job data for August were also revised upwards by 89,000 jobs. However, comments by former FED Chairman Alan Greenspan and President Janet Yellen, heightened concerns about the US economy, arguing that signs of slower growth would push FED to cut rates. Greenspan stated that the credit squeeze that had rattled financial markets would take it toll eventually on the US economy, pressing home prices downwards and forcing consumers to slowdown on spending. Although minutes from the last policy meetings in September gave no clear clues about the future move of the FED, December rate futures assessed a 76 percent chance of a 25 basis point cut next month. The FED slashed interest rates by 50 basis points last month but the odds of another cut this month had receded.

The US currency snapped out of it towards the end of the week after retails sales for September indicated that US consumers continued to spend despite a weak housing sector. This encouraged investors who believed that the FED would not need to cut rates to cover short dollar positions. In addition, the US currency got a boost of fresh air when dovish comments from Jean-Claude Trichet made market players believe that borrowing rates in the euro zone would remain unchanged until year-end. Trichet, in his speech, spelled out concerns about downside growth risks in the eurozone.

<B>The US dollar traded at MUR 31.008 yesterday compared to MUR 30.856 last week. </B>

The Japanese currency got no support from the Bank of Japan?s monetary policy officials as they left overnight interest rates unchanged at 0.5 percent. According to analysts, the Yen might get a boost in the event the BOJ Governor Toshihiko Fukui bolstered expectations by announcing an increase in interest rates in Japan in the near future. However, no mention a future was made in Fukui?s statement. According to analysts, yen weakness would persist as long as currency volatility remained low and stock markets remain robust.

<B>The Japanese yen was traded at MUR. 26.41 as against MUR 26.33 last week</B>

Sterling started the week on strong footings boosted by a slew of robust economic data. UK?s manufacturing output rose better than expected by 0.4 percent in August while manufacturers? raw material costs rose at their fastest monthly rate in more than two years. However, it slipped due to poor UK?s trade data and a downward revision of 2008 growth forecast by the International Monetary Fund to 2.7 percent from 2.3. Towards the end of the week, the pound recouped some of its losses as speculation grew that the Bank of England would not cut rates to ease economic slowdown or help the business sector to cope with the ongoing credit crunch this year.

<B>The Sterling was traded at MUR. 63.33 as against MUR 63.73 last week. </B>

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

Wednesday 17 Oct: US Mortgage index, CPI Thursday 18 Oct: US Jobless claims, GB Retail Friday 19 Oct: GB GDP Tuesday 23 Oct: US redbook

<B>Vassan CALEEMOOTOO </B> HSBC Mauritius Treasury and Capital Markets