The dollar was rendered powerless against the euro as Jean-Claude Trichet made hawkish comments on the state of the European economy. The US currency managed to pull some tricks out of its bag and clawed back some gains.

At the beginning of the week, the greenback sent some positive vibes after robust data pointed out that the US economic slowdown might not be as bad as expected. The ADP private report indicated that key government data released showed that the labor market was showing signs of recovery. In fact, 189 000 jobs were created last month as opposed to economists? forecast of 50 000 jobs. Demand for the US currency got a boost as global equity markets rebounded. Investors bought back the dollar getting some comfort as stock in Asia, Europe and US benchmarks stock indexes showed significant gains.

The euro vaulted to a session high of $1.4636 after Jean-Claude Trichet, President of the European Central Bank stated that he would leave interest rate in the euro zone on hold but warned that interest rates would go up if «strong upward pressure» on prices was noted. However, the euro lost grip as stronger than expected US non-farm job report eased worries that the Fed rate cut in overnight borrowing costs would be less than initially stated. Previous economists? forecast pointed to a 50 basis points cut while the new revised forecast tend towards a 25 basis points only. This gave investors an oxygen balloon, as the US economy was not falling into the abyss. According to analysts, a 25 basis point cut would certainly reduce the allure of US denominated assets but would not indicate that the fundamental structure of the economy was at risk.

Rate futures were factoring approximately a 41 percent chance of a 50 basis points interest rate cut as compared to 65 percent a week ago. On the other hand, a 25 basis point cut was widely expected to happen at tomorrow Fed meeting by the market.

● <B>The US dollar traded at MUR 30.296 yesterday as compared to 30.432 last week</B>

Sterling lost ground against the dollar as a stream of negative data pilled pressures on the Bank of England (BoE) to cut interest rates. British service sector growth dipped to its lowest level in over four years in November. The Chartered Institute of Purchasing and Supply activity index fell from 53.1 to 51.9. House prices fell 1.1 percent in November to a survey done by HBOS Plc Halifax as compared to analyst forecast that prices would be flat.

In line with analysts? expectation, the BoE went ahead and eased borrowing cost by 25 basis points. Immediately the pound nose-dived but managed to recover some of the losses towards the end of the day?s session. According to analyst, the market had expected the cut but the relatively balanced tone of the BoE?s statement seemed to reassure investors that more cuts were not happening anytime soon.

● <B> Sterling was traded at MUR. 62.02 as against MUR 62.61 last week.</B>

The Japanese yen moved to the ebb and flows of Asian stock markets, with gains in equities seen as a boost for taking riskier positions in carry trades. Due to the fact that the yen is a low-yielder; investors had been borrowing them to buy higher-yielding currencies. However, carry trades had lost some favor among investors during the August credit crunch causing them to reduce some of their short yen positions.

Towards the end of this year many analysts were expecting the dollar to be underpinned against the yen by Japanese households and individuals investing their winter bonuses into foreign assets in the next few weeks.

● <B>The Japanese yen was traded at MUR. 27.13 as against MUR 27.61 last week</B>

In Mauritius, most USD/MUR traders are wrapping up to end up the year on a positive note. On the other hand, all eyes are turned on Kiat, the HSBC trader, who will be tying the knot this week.

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