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Dollar bulls issue a warning class one
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Dollar bulls issue a warning class one
The US currency left the New York trading session at the start of the week looking bullish while dealers were awaiting torrential amount of US economic data that could point out the future path of the US monetary policy.
In spite of the fact that the Federal Reserve (Fed) had left US interest rates at 5.25 percent, currency strategists adopted a wait and see attitude, reluctant to take positions before reading the Fed policy minutes that could shed some clues as to what the Fed had in store for this year. The dollar navigated through tight waters throughout the rest of the week. Both the report from the Institute for Supply Management’s manufacturing index and the report on manufacturing sector for January came out dovish, making the direction of the US economic growth hard to predict. Consequently, many analysts turned their focus to the US job data that showed moderate but healthy growth. However, employment estimates for both November and December shrugged off the downbeat job data as they were both revised upwards depicting a strong portrait of the US economy.
The greenback got an added boost when European Central bank (ECB) officials sounded less hawkish in its comments about future hikes in the euro zone after the expected one in March. The euro tumbled to 1.2950 as traders scrambled to cover short dollar positions. The ECB had increased borrowing costs six times since late 2005, pushing overnight rate to 3.5 percent. On the other hand, the US and the UK interest rates were already raised to 5.25 percent. Against the Mauritian rupee, the dollar was trading at MUR 33.71 yesterday compared to MUR 33.68 a week earlier.
Possible hike of British interest rate </B>
The Sterling was heavily supported by possible inflows from mergers and acquisition activities as well as robust British economic fundamentals during last week trading.
According to the Bank of England (BoE), mortgage lending rose by 10.58 billion pounds in January, up from 10.034billion in November. The National Institute of Economic and Social Research revised upwards the 2007 GDP growth forecast to 2.75 from 2.5 percent. British manufacturing activity growth improved surprisingly against analysts forecast from 52.0 in December to 52.8 in January. These data gave the go ahead to traders to stick their necks out and take long Sterling positions. Towards the middle of the week, the pound fell briefly on a bout of profit taking.
The pound rally lost steam toward the end of the week when a report showed that Britain’s service sector expanded at its lowest pace in four month. However, many analysts believed that the UK’s economy was going strong and that the BoE might have another hike up its sleeves for 2007. Against the Mauritian rupee, the Sterling was trading at MUR 66.75 yesterday same as a week earlier.
The yen weakness might be in the spotlight at the Group of 7 Finance Ministers this week as a chorus of European officials was pushing for this issue to be onto the agenda. Markets players had
started to cover slightly short yen positions as the currency’s broad weakness was reflected by its 0.25 percent yield.
However, both the US Treasury secretary Henry Paulson and Japan’s top financial diplomat, Hiroshi Watanabe, stated it was unlikely that yen weakness would be singled out to be a topic at the G7 meeting. Against the Mauritian rupee, the yen was trading at MUR 28.52 as compared with MUR 28.98 a week earlier.
Major data-events this week:</B>
<B>Wednesday 07 Feb : </B> <I>Mortgage Indx, EZ Cons Confidence </I>
<B>Thursday 08 Feb :</B> <I>GB BoE rate EZ ECB rate US Jobless</I>
<B>Friday 09 Feb :</B> US Durables </I>
Monday 12 Feb : </B> <I>US Fed budget</I>
<B>Tuesday 13 Feb : </B> <I>US Redbook EZ GDP</I>
<B>Vassan CALEEMOOTOO</B> Contributed by HSBC</I>
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