The dollar rallied against the euro as surprisingly good retail sales data fuelled expectation that the US economy was moving away from recessions. Many traders figured that they might have oversold the greenback rushed to reduce their positions.

January retail sales data unexpectedly reversed market?s expectations that the US economy were plunging out of recession. US sales rose 0.3 percent in January, contrary to Wall Street forecasts for a fall. This pushed some traders to cut down their bets against the dollar while awaiting Fed Chairman Ben Bernanke?s testimony to find clues as to where the US currency was heading to. The euro was down on the day by 0.1 percent at $1.4569 after hitting session lows at $1.4533. However, some analysts still believed that the dollar current downward trends would persist and that the positive sales data should not alter the view of a slowing US economy. Since September, the Fed has slashed US borrowing rates by 2.25 percentage points to 3 percent. In addition, interest rate futures were factoring a reduction in FED?s benchmark interest rate to 2 percent this year.

However, the US currency could not sustain the momentum. In fact, its rally got knocked out as a batch of weak economic indicators and Bernanke?s warning of continued sluggish growth in the near term re-kindled fears that the US economy would continue to slouch towards recession. Also bruising the dollar was Moody?s drastic ratings cut of FGIC?s bond insurance arm last Thursday, making it the first big bond insurer to lose its top rating from all three major ratings and keeping investors cautious about the struggling credit market. Traders went ahead and increase their bets on the euro and the latter shot to $1.47.

European Central Bank?s official?s poured fuel onto the fire when they stressed that inflationary pressures in the eurozone was still a major concern. This hawkish statement from the ECB scaled back market expectations that the ECB would ease on interest rates to keep in line with the rates in the US and in the UK. After dipping to around $1.4440, the euro clawed back gains and rose to $1.4900.

The US dollar traded at MUR 28.72 yesterday as compared to 29.13 last week.

The dollar slipped around 107.65 yen in early Tokyo trade, roughly a yen lower than 108.62 yen touched last Thursday for the first time since mid-January. The yen was supported by a broad slide in Asian shares, which followed their US counterparts. A significant increase in long yen positions in the past weeks had kept the dollar struggling against the yen, and traders were betting on a major fall in the US currency, given the weak US economic fundamentals. The Sterling was traded at MUR. 56.02 as against MUR 56.82 last week.

Sterling had a relatively good week as it rallied throughout most part of last week trading. The relative weakness of the greenback eclipsed aside tame UK?s inflationary numbers that suggested that the Bank of England might be cutting interest rates further.

Consumer prices in the UK rose by 2.2 percent year-on-year in January, softer than the 2.3 percent forecast percent rise and surprising analysts who braced for a higher number after factory gate inflation rose to its highest rate in 16 years.

The Japanese yen was traded at MUR. 26.55 as against MUR 27.25 last week.

Vassan CALEEMOOTOO

HSBC Mauritius Treasury and Capital Markets