The dollar rebounded, bolstered by growing speculations that the United States could be steering away from the brink of a recession while other major countries grappled with their own decelerating economies.

In the absence of clues as to the where the US currency was heading to, many traders were covering their short dollar positions on what was seen as consolidation. According to analysts, the dollar rally was very much alive and kicking despite bearish US data. In fact, the growth potential and interest differentials put the US currency in a favorable position for future gains. The recent sharp deterioration in the economic outlook of other major economies supported the dollar. In addition, the dollar index, which measured the value of the US currency against a basket of six major currencies, rose by 0.6 percent to reach 77.169. On the other hand, the euro fell 0.7 percent to $1.4684, close to its six-month low of $ 1.4631. Futures markets, furthermore, did not factor any interest rate increase in the euro zone this year encouraging investors to close down long euro positions.

Toward mid-week the dollar got a blow when news hit the market that both China CITIC Securities and state-owned Korea Development Bank walked away from talks over a 50 percent stake in Lehman Brothers because the price was too high. According to analysts, Lehman financial situation was such that they could soon write-downs approximately $4 billion. However, the negative sentiments for the greenback did not linger around. The US currency bounced back when crude oil prices fell by $6.50 to below $115 per barrel. Economists believed that the US dollar would continue its recovery in the medium-term despite persistent issues with the US mortgage finance companies.

<B> The US dollar traded at MUR 28.76 yesterday compared to MUR 28.66 last week. </B>

The Japanese yen got massively hammered against the up and coming US dollar. In fact, the dollar climbed 0.1 percent against the yen during US trading sessions. Market players expected the yen to weaken considerably in the absence of bullish Japanese data.

<B> The yen was sold at MUR 26.20 as compared to MUR 26.05 last week. </B>

Sterling had a rough week as it succumbed against a resurgent dollar. The Bank of England?s Monetary Policy Committee minutes showed that the policy members were split three ways on the direction of the British interest rates. The minutes also showed the BoE?s assertion that inflation might fall below target in two years, pushing economists to believe that an interest rate cut in the UK would be imminent. In addition, a batch of UK?s economic data showed that the housing, retail and service sectors were still in turmoil.

<B> The Sterling was traded at MUR 53.09 as against MUR 53.41 last week</B>

<B>Major data/events this week :</B>

Wednesday 27 Aug : US Mortgage index, Durable gds

Thursday 28 Aug: US Jobless claims

Friday 29 Aug:

Monday 01 Sep: GB Mortgage

Tuesday 02 Sep: US Mortgage Index

EZ retail sales

<B>Vassan CALEEMOOTOO</B>

HSBC Mauritius Treasury and Capital Markets