The focus on the currency market last week was the weekend G7 summit of industrialized nations and its stance on currency movements, especially on the issue of China’s exchange rate. Previous G7 meetings had urged China to consider revaluing its currency to address unfavorable trade positions of China’s main trading partners.

The dollar had fallen to two-month lows against the Euro at 1.2436 per Euro on Thursday, in a technically driven trade, despite a stronger-than-expected US regional business activity survey. Worries over high oil prices and uncertainty about the near-term outlook for the US economy had weighed upon the greenback.

However, the US currency reversed some of its losses on Friday as traders started to adjust their positions ahead of the much-awaited G7 summit. The greenback gained further in the aftermath of the closing statement from the G7 meeting on market perception that no additional pressure was made on China to revalue his currency; thus reducing the likelihood of a near-term strengthening of Asian currencies against the dollar. The US unit surged closer to the 1.22 level per Euro, reversing its previous week’s losses.

Against the MUR, the dollar was more or less flat, ending the week at 28.8372 against 28.8372 a week earlier.

The Euro was offered at MUR 35.36 yesterday compared to 35.45 one week earlier.

<B>Near-term revaluation of Asian currencies</B>

The yen had gained slightly against the dollar on Friday after the release of the much-awaited “Tankan” survey of Japanese business sentiment. The report from the Bank of Japan was stronger than expected and actually showed the strongest reading on Japanese business sentiment since 1991. However, the Japanese currency failed to surge further as the market reassessed the report as being cautious on the business outlook for coming months.

The yen finally lost ground against the recovering dollar in the aftermath of the G7 summit on reduced likelihood of a near-term revaluation of Asian currencies.

Against MUR, the yen was offered at 26.10 yesterday, down from 25.99 a week earlier.

The sterling fell to two-week lows against the dollar and eight-month lows against the euro over the past week. Weak UK manufacturing data on Monday reinforced the view that British interest rates might be near or already at their peak. The data came a few days after a Bank of England official commented that the UK central bank could be nearly done with interest rate rises. As lower expectations of UK rate hikes kept the pressure on the pound, the latter was dealt another blow on Friday by political uncertainty fuelled by Prime Minister Blair’s health problems.

Against MUR, the pound lost 71cents over the past week, dropping from 52.21 to 51.50

Major events/data due this week:

6 Oct GB Ind Prod YY

US	Mortgage Indx

7 Oct GB BoE rate

Eurozone	ECB rate

US		Jobless Claims

8 Oct US Unemployment

11 Oct GB Trade Balance

12 Oct US Redbook

<B>Contribution by HSBC</B>