The dollar buoyed a to seven-week highs against the euro as oil prices subsided and as the Federal Reserve maintained its rhetoric of quelling persistent US inflation pressures in the US economy. In addition, a batch a bullish data did nothing but added a bucket of fuel to the blazing greenback.

The US currency started the week pairing gains with the euro after the FED kept interest rates unchanged at 2 percent. Many investors were disappointed when the board minutes revealed that only Dallas Fed President Richard Fisher opted for higher rates. According to analysts, concerns still lingered on economic growth and inflation. By leaving interest rates unchanged, the FED had favored a growth strategy over the threat of an upside risk in inflation. However, traders were seen covering short dollar positions as the drop in oil helped eased fears that high energy prices would continue to weigh on the US economy. In fact, oil fell to a three month trough of $118 per barrel while metals and other commodity prices dropped further due to a drop in global demand. During the closing sessions, the euro had lost grip and was traded at $1.5448 as opposed to $1.5461. The ICE Futures US dollar index, which measures the US currency?s performance against a basket of six currencies, soared as high as 73.990 from 73.9360.

Towards mid-week, the dollar rose piggy-backing on a renewed appetite for risk after a rally in the stock market. The greenback gathered momentum with a surprise rise in June home sales. The gain in homes sales offset a bleak US jobless claims report which supported the view that the current housing slowdown might be nearing the bottom. This data reinforced expectations of market players that the FED might hike up interest rates before the year end.

Another catalyst for the greenback?s rally was the diminished expectation for a euro zone interest rate increase. In fact, the European Central Bank kept interest rates in the euro zone unchanged and in his remarks, ECB President Jean-Claude Trichet, stated that euro zone?s economic growth were more likely to weaken this year and that inflationary pressures would remain.

The US dollar traded at MUR 28.05 as compared to MUR 27.39 as last week. Sterling had a rough week stumbling against the dollar after domestic output fell 0.5 percent in June from May, more than economist forecast. The pound managed to pull back from sessions low after the CIPS/Market services PMI index ticked up to 47.4 last month from a seven-year low of 47.1 in June.

Toward the middle of the week, the Bank of England?s decision to keep interest rates in the UK unchanged pilled more pressures upon the pound. The BoE, caught between strong inflationary pressures and the need to stimulate growth, decided to keep rates on hold at 5 percent. However, most analysts expected that the BoE?s next move to be a cut. This caused sentiment for the pound to turn sour and the UK?s currency to fall below $1.95 for the first time since mid-June.

The Sterling was traded at MUR. 53.48 as compared to MUR 53.65 last week.

The Japanese yen had a rough time with the dollar rally despite exporters been squaring positions ahead of the Japanese holiday. In addition, more pressures ganged up upon the poor yen after a series data supported the view that Japan?s longest expansion of the postwar period might be over.

The Japanese yen was traded at MUR. 25.42 as compared to MUR 25.27 last week.

Vassan CALEEMOOTOO

HSBC Mauritius Treasury and Capital Markets