Cold and hot winds blew on the US currency, as dealers failed to detect any clear signals on the future path of the greenback. Traders were torn between dumping the greenback, on concerns about the sagging US stock markets, and betting on it due to growing inflationary pressures within the US economy.

Despite reports that the US?s unemployment rate jumped to five percent in December, analysts debated that inflationary concerns would most likely prevent the Federal Reserve (FED) from opting a more aggressive stance on interest rate. They expected that the FED?s interest rate cut might be 25 basis points instead of 50 basis points at its Jan 30th meeting. Currency analysts, on the other hand, were reluctant to continue short selling the dollar, as the currency?s fall seemed to rock bottom. In late New York trading at the beginning of the week, the dollar index rose to 76.175, recovering from 75.429. In addition, the European common currency, after having appreciated to almost 10 percent since 2007, lost 0.4 percent to close at $1.4688.

Towards the middle of the week, some safe-haven flows were noted as reports stated that five Iranian boats harassed US Navy ships in the Strait of Harmuz. However, a sharp drop in US stocks added fears of an US economic recession. The phone company, AT&T raised traders? sensitivity when it stated that it was experiencing some softness in its consumer business. In addition, Countrywide Financial Corp?s stock plunged despite it denied that it was facing any financial difficulty. Concerns about continued dislocation in the credit market were still weighing on the dollar especially when sales of existing homes fell 2.6 percent in November. According to Boston Federal Reserve President Eric Rosengren, the US housing market was headed for its worst performance in 50 years and that potentially the drop in home prices could gather speed if the economy weakens.

Federal fund futures contracts are pricing roughly a 74 percent of a 50 basis point fall in the FED overnight borrowing rate, while a 25 basis point cut had already been factored in by the market. However, many investors remained cautious ahead of Thursday?s speech on the US economy by the FED Chairman, Ben Bernanke and kept their bets in tight ranges.

● <B>The US dollar traded at MUR 29.07 yesterday compared to MUR 28.77 last week.</B>

Sterling nose-dived against the greenback due to the bearish stance on the UK?s economy and growing expectations on the part of investors of at least two interest rate cuts by the Bank of England before the end of the year. The pound got a breather when a survey from mortgage lender Halifax indicated that house prices in the UK were going up by 1.3 percent in December. However, the ride did not last long for the pound as it later on succumbed to a bout of profit taking. In addition, data from the British Retail Consortium showed that retail prices eased up last month. Retailers were cutting prices to increase sales of non-food items.

● <B> The Sterling was traded at MUR. 56.92 as against MUR 56.71 last week</B>

The Japanese yen got a boost during last week trading, as investors turned risk-averse and unwound risky carry trades. Moves in equities markets tend to be the measuring rod for investors? willingness to take on risky carry trades, which involve selling low-yielding currencies like the yen to buying higher-yielding currencies. However, towards the middle of the week, the yen got knocked down as Tokyo share prices slid. Foreign investors ran for cover by buying the greenback and sold the yen.

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