Last week trading on the currency market saw the dollar weaken near its four-week low against the European single currency trading at $1.2381. The greenback eased after US data released on last Friday, showing the trade deficit at record levels, fanned worries about the health of the US economy. The US trade deficit widened well beyond expectations in June, hitting a record $ 55.8 billion, due to the biggest drop in exports in nearly three years. Moreover, analysts said that recent data has shown that steep oil prices have already begun to hurt the US economy, damaging consumer sentiment, boosting producer prices and imports. However, dollar recovered as last Monday’s report on flows into US assets showed enough of a rise in foreign investment to offset the current account gap for the month. The report helped to ease market concerns about US ability to attract enough foreign capital to fund its growing trade gap.

Against the Mauritian rupee, the euro was trading at MUR 35.37 as compared with MUR 35.14 a week earlier.

Earlier in the week, the Japanese currency slipped against the dollar to trade at a two week low of $ 111.80, as surprisingly weak Japanese growth data cast doubt about the health of the world’s second largest economy. Japan, whose economy previously outperformed those of the US and Euro zone, saw its economy growing by just 0.4 per cent in the second quarter, less than half of what market had expected. Nevertheless, the yen recouped all its losses as oil prices retreated from record highs, after Venezuelan President Hugo Chavez survived a recall referendum. This helped to remove the threat of disruption to the country crude exports.

Yesterday, the Japanese currency was offered unchanged at MUR 25.97 as compared to previous Tuesday’s exchange rate.

Sterling slipped against the dollar after hitting a three-week high as market lost confidence in the likelihood of steep rises in UK interest rates. Sterling has been trading on the back foot especially after Bank of England sounded dovish in last Wednesday’s quarterly inflation report. The inflation report followed a cautious statement accompanying the latest UK quarter percent interest rate rise to 4.75 per cent on 5th August, and weak US data that raised concerns about global growth. The report also suggested that UK interest rates might peak at 5.00-5.25 per cent. Markets will be watching forthcoming data to see whether the five hikes the Bank of England has made so far have taken the steam out of the booming housing market and tempered consumer demand for credit.

Yesterday, the pound was trading at MUR 52.70 as against MUR 52.73 last Tuesday.

Major data/events this week:

Wednesday 18 Aug -

Thursday 19 Aug

German PPI, UK Retail Sales,

US Jobless Claims

Friday 20 Aug -

Monday 23 Aug -

Tuesday 24 Aug -

<B>Contribution by HSBC</B>