The greenback managed to save face after losing some cool points at the start of the week.

A batch of US economic data showed that the US trade deficit in December looked wider-than-expected while the euro was buoyed due to robust euro zone growth data.

Spooked investors dumped the US currency when news hit the market that the US trade deficit swelled to $ 61.1billion in December, more than what economists predicted. In stark contrast, the euro gained support from data showing that the euro zone economy grew at a brisker-than-expected 0.9 percent pace in the last quarter pushing expectation higher that the European Central bank (ECB) would raise interest rates next month. Furthermore, in the absence of more US data, all heads were turned to Federal Reserve Chairman Ben Bernanke’s semi-annual testimony to the Congress. However, Bernanke disappointed dollar bulls by pointing out that inflationary pressures were easing down, boosting the expectation for an interest rate cut in the second half of this year. Immediately, the euro broke above $1.31 for the very first time since January. According to analysts, the gap between real yields on US and euro zone debts indicated that growth momentum was tilting towards Europe, causing sleepless nights for dollar bulls. A batch of dovish US data, together with the slide consumer confidence, put up a serious case for an interest rate cut later this year. According to analysts, the dollar lackluster was mostly caused by weak manufacturing output, a wider trade deficit in December and a shortage of capital inflows to finance the deficit. Against the Mauritian rupee, the dollar was trading at MUR 33.448 yesterday compared to MUR 33.61 a week earlier.

Sterling suffered throughout most of last week trading session. Actually, a steep decline in British inflation cooled expectation of a near interest rate hike in the UK. The inflation data slowed to 2.7 percent in January from 3.0 percent in the December, posting the biggest fall in four years. Interest rate futures were still pricing one more 25 basis points interest rate hike in June, but analysts did not forecast a hike in the near term. The pound did get a boost, reversing its initial knee-jerk fall, in mid-week after Bank of England Governor Mervyn King stated that the outlook for inflation was uncertain due to energy prices. However, many analysts believed that the pound’s fresh burst would not be long-lived especially as the UK’s retail sales data came out dovish.Against the Mauritian rupee, the Sterling was trading at MUR 65.86 yesterday as compared to MUR 66.04 a week earlier.

The yen tumbled across the board throughout most of last week trading sessions especially as the Group of Seven did not issue a formal warning about the yen weakness. With interest rates as low as 0.25 percent, investors sought out the yen and then swap it for higher-yield currency to profit on the spread. Towards the end of the week, the yen got a breath of fresh air, when traders started covering their short positions ahead of Japan’s fourth quarter growth data. In fact, the data came out surprisingly strong. According to the report, the Japanese economy grew to an annualized pace of 4.8 percent, higher than the expected 3.8 percent due mainly to an upturn in personal consumption. However, market participants still believed that the yen weakness would not change anytime soon even if the bank of Japan would hike up rate by 0.25 percent next month. Against the Mauritian rupee, the yen was trading at MUR 29.16 as compared to 28.52 same as a week earlier

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

<B>Wednesday 21 Feb :</B> Mortgage, Redbook, CPI, EZ Cons Confidence BoJ rate

Thursday 22 Feb : </B> US Jobless