The US dollar notched its best performance since 2005 against a basket of currencies as mounting price pressures caused Federal Reserve chairman, Ben Bernanke, to sharpen his inflation rhetoric. In a speech last week, Bernanke stated that the US central Bank would resist rising inflation especially when possible downturn in the US economy had been avoided.

Bernanke?s comments demonstrated the seriousness with which the US central bank was tackling inflation and might be compelled to raising interest rates in this year itself. Immediately, traders rushed to reduce short dollar positions causing the euro to fall over 2 percent over the last week sessions. The euro was trading at $ 1.5450, its worst performance since June 2005.

Despite Bernanke?s bullish comments eclipsed the stance of the European Central Bank, the euro experienced a slight revival when the ECB, with a host of other central banks throughout the world, cranked up a thorough discussion on how to manage inflation risks while ensuring a decent level of economic growth. However, the euro rally could not keep the momentum going as a flurry of hawkish comments from FED?s officials and strong US retail sales last month caused a rally in the greenback. In fact, data showed that consumers used government?s rebate checks to support spending, causing retail sales to rise percent in May as compared to the month of April. Consequently, the market started to factor in a total of 75 basis points in interest rate hike even before the end of the year. In addition, the euro lost more grounds after Irish voters rejected a treaty promoting closer European Union unity, putting wide-ranging institutional reform plans at risk and sending the euro to $1.5304.

<B>The US dollar traded at MUR 27.50 as compared to MUR 27.84 as last week.</B>

The Japanese currency continued its downward trend as investors continued to ditch the yen to purchase other high-yield currencies. Furthermore, market players were watching the performance of oil prices ahead of the Group of Eight financial officials in Osaka, Japan. Besides, the Bank of Japan would end its two-day policy meeting this coming Friday. According to analysts, the BoJ would most likely keep interest rates steady at 0.5 percent.

<B>The Japanese yen was traded at MUR. 25.53 When compared to MUR 26.39 last week.</B>

Sterling failed miserably to take advantage of robust UK sales and output data. In fact, in a speech last week, the Bank of England Governor, Mervyn King gave a grim outlook of the state of the UK?s economy. According to King, UK?s economic growth was slowing while turmoil in the financial sector continued. Toward the end of the week, the pound got a breather when market players speculated that the BoE would hike up interest rates to contain inflationary pressures.

<B>The Sterling was traded at MUR. 54.24 when compared to MUR 54.80 last week.</B>

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