Last week trading on the currency market saw the dollar plunged across the board near its three-week low against the European single currency trading at $1.2275. The greenback eased after a far weaker than expected US employment report cast doubt about the health of the US economy, as well as over the pace at which the Federal Reserve would raise US interest rates. US non-farm payrolls added only 32,000 jobs in July compared to expectations for 228,000 new jobs. The Labour Department also cut its tally of job growth for May and June by 61,000. Attention is now firmly focus on the Fed’s Open Market Committee meeting on Tuesday 10th August. It is widely expected that the Fed will raise US interest rate to 1.5 percent from the current 1.25 percent. Whilst the weaker than expected payrolls number on last Friday is not likely to alter the Fed’s move to hike interest rate by a quarter percent, it will almost surely cause the market to take out any expectation of an FOMC hike in September.

Against the Mauritian rupee, the euro was trading at MUR 35.14 as compared with MUR 34.40 a week earlier.

Over the week, the Japanese currency recovered all of its previous days’ losses against the dollar to trade at a two week high of $109.82 on the back of weak job data figures. Prior to the release of US non-farm data, the greenback had notched up solid gains against the yen on worries about the effect of surging crude prices on Japanese economy, which relies on oil imports. Rising oil prices had been the starting point for the sell off despite robust Japanese economic numbers. US oil prices struck another record high above $45 a barrel amidst renewed concerns over Russian oil giant Yukos, and its ability to continue exporting. Record high oil prices are yen negative as they dim the outlook of Japan’s recovery, and encourage investors to pull out of Asian stock markets

Yesterday, the Japanese currency was offered at MUR 25.97 as compared to MUR 25.89 on the previous Tuesday.

Sterling leapt more than one percent against the dollar to two-week high after dismal US employment report. The week also saw the Bank of England delivering its fifth interest rate rise in less than a year. The Bank of England raised its interest rate by a quarter percent to 4.75 % in a widely expected move to cool Britain’s booming economy. Higher borrowing costs were needed to keep inflation in check and on track over its two-year horizon. However, with consumer demand and house prices starting to show signs of moderation, the end of the rising cycle might just be on the cards.

Yesterday, the pound was trading at MUR 52.73 as against MUR 52.27 last Tuesday.

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

Wednesday 11 AugUS Federal Budget

Thursday 12 Aug:

US Jobless Claims, US Retail Sales, Japanese GDP

Friday 13 Aug:

Eurozone GDP, US PPI, US Michigan Preliminary

Tuesday 17 Aug:

Eurozone Industrial Production, US CPI, US Retail earnings, US Redbook, US Industrial Production.

<B>Contribution by HSBC</B>