Last week trading on the currency market saw the dollar drop to a record low against the euro and hit multi-year lows versus all other major currencies. The dollar traded at a record low against the European single currency at $1.3329 per euro. Broad dollar selling gathered momentum over the week as worries about the US current account deficit knocked nearly nine percent off the greenback against the euro since early October. The US currency was also weighed down by the lack of action among US policy-makers to slow the dollar’s slide, and speculation some central banks were increasing their euro holdings. The greenback was further pressured after the Bank of England’s chief economist, Charles Bean, suggested that its slide might still have some way to go. To add more gloom to the dollar, even weaker-than-expected German IFO and a fairly solid University of Michigan consumer sentiment number did little to ease heavy US selling pressure. However, US losses were kept in check as doubts about an earlier report on China’s currency reserves helped trigger a pullback. Furthermore, nervousness about intervention by the European Central Bank to weaken the single currency against the greenback kept the dollar bears on their toes.

Against the Mauritian rupee, the euro was trading at MUR 38.07 as compared with MUR 37.44 a week earlier. Over the week, the Japanese yen strengthened to 41/2 year highs against the dollar, trading at around 102.18 yen per dollar. Worries about a surging yen hurting Japan’s economic recovery have prompted Japanese officials to step up their rhetoric about intervention. Bank of Japan Governor Toshihiko Fukui said that recent movements in the foreign exchange market were not stable. Earlier BOJ Policy Board member Hidehiko Haru said he would pay attention to any negative impact the recent rise in the yen had on the economy. Japan’s top government spokesman Hiroyuki Hosoda said the yen’s recent surge did not reflect fundamentals and that authorities would act against rapid currency moves. Japan has not intervened in currency markets since March, after a record 20 trillion yen ($194.4 billion) of dollar-supporting intervention in 2003.

<B>Sterling hits a nine-month high</B>

Yesterday, the Japanese currency was offered at MUR 27.93 as compared to previous Tuesday’s 27.92.

Sterling hit a nine-month high against the struggling dollar, benefiting from the greenback’s slide against major currencies as the focus on US deficits continued to weigh. However, expectations that UK interest rates might have peaked at 4.75 percent took some gloss out of the pound. The reading of third quarter GDP growth data on last Friday that was the weakest quarterly growth rate in 1-1/2 years supported the view that the Bank of England had leeway to leave UK interest rates steady.

Yesterday, the pound was trading at MUR 54.26 as against MUR 53.42 last Tuesday.

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

• Wednesday 01 Dec

Euro zone GDP, US Consumption

• Thursday 02 Dec

US Jobless Claims,

US Durable goods

Euro zone ECB interest

rate setting, Euro zone PPI

• Friday 03 Dec

Euro Zone Retail Sales US ISM Non-Manufacturing

• Monday 06 Dec

UK Industrial Production

• Tuesday 07 Dec

US Redbook, Japan GDP

<I>Contribution by HSBC</I>