Last week trading on the currency market saw the dollar edge higher against the euro, trading at around $ 1.3010 but more than four percent off its peak of $ 1.3670 hit on December 30. Pressure on the euro mounted after the ECB President Jean-Claude Trichet on last Thursday supported ECB Chief Economist Otmar Issing’s remarks earlier in the week that Asian currencies must do more to bear the burden of dollar weakness.

The comments were seen as directed at China and the pegging of its currency to the dollar, which some nations said gave it an unfair trade advantage. The Asian currency issue will be in focus ahead of a meeting of finance ministers and central bankers from Group of Seven rich nations in London in February. Furthermore, the greenback also found support after a senior Federal Reserve official hinted the United States could accelerate the pace of raising US interest rates and that Washington would pledge for a tighter budget and strong dollar policy. US President George W. Bush said in an interview on last Thursday that the budget he would propose next month would freeze spending for some programs and deny funding to others to meet his deficit reduction goals. Against the Mauritian rupee, the euro was trading at MUR 37.47 as compared with MUR 37.58 a week earlier.

<B>G7 nations to repeat their call</B>

Over the week, the Japanese yen held near five-year highs versus the dollar yesterday, as European calls for more currency flexibility in Asia fuelled a perception that the Japanese unit has lagged the euro’s gains against the US currency. Market players are expecting G7 nations to repeat their calls at Group of Seven (G7) countries’ finance ministers’ and central bankers’ meeting on February 4-5 on Asian countries to adopt more flexible foreign exchange regimes. In anticipation, speculators are likely to push up the yen before the G7 meeting in February.Yesterday, the Japanese currency was offered at MUR 28.13 as compared to previous Tuesday’s 27.59.

Sterling fell against a stronger dollar, maintaining its soft tone due to weak economic data from Britain. Disappointing figures on retail sales and manufacturing as well as weak housing data this week have fanned talk that the next interest rate decision from the Bank of England could be a sterling-negative cut. Last Thursday, Britain’s central bank kept rates unchanged at 4.75 percent at the conclusion of its two-day meeting, a decision that had been widely anticipated by analysts.Yesterday, the pound was trading at MUR 53.39 as against MUR 53.82 last Tuesday.

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

Wednesday 19 Jan
US Jobless Claims, US CPI, US Retail Earnings

Thursday 20 Jan US Philadelphia Fed

Friday 21 Jan StratoginaUK Retail Sales, US Michigan Preliminary

Monday 24 Jan

Tuesday 25 Jan US Redbook, US Consumer Confidence

<B>Contribution by HSBC