Last week trading on the currency market saw the dollar climb to its highest in five months against the European single currency. The greenback was bolstered by recent upbeat US data after a weekend Group of Seven meeting put no obstacles in its recovery path. The G7 communiqué was uneventful, allowing investors to concentrate on the prospect of higher interest rates.

Expectation about Federal Reserve monetary policy has been a dominant feature of last week trading. In a week full of speeches by Fed chairman Alan Greenspan which started on last Tuesday before the Senate Banking Committee, he expressed optimism about the US economy, jobs and said productivity gains were still impressive. He also declared that deflation, that is, downward pressure on prices ? a major reason behind low official interest rates ? was over, whilst inflation was well contained. During his testimony the following day before the Congress Joint Economic committee, Alan Greenspan reiterated that inflation was not yet a threat. He also said that at some point interest rate would have to rise but gave no timing.

Proponents of a US interest rate hike were further comforted in their views as various Fed speakers did nothing to alter market perception interest rate would rise from the current 1958 low of 1 percent. As long as there exists reasonable chance of a rate hike, the currency market will favour the dollar based on the narrowing of interest rate differential. Already nursing losses from the start of last week, the single currency recovered its footing after better than expected German business sentiment.

Next week, market attention will be drawn on US consumer confidence and gross domestic product that might provide clues as to Federal Reserve timing of the first interest rate hike and of any signs of pick up in inflation pressures.

Against the Mauritian rupee, the common currency was trading at MUR 32.80 as compared with MUR32.91 a week earlier.Over the week, the greenback advance against the yen was capped by considerable dollar sell off by Japanese exporters ahead of a succession of national holidays, known as Golden week, that kicks off on this coming Thursday. The dollar was earlier boosted by upbeat US data that raised speculation of a US interest rate hike.

Yesterday, the Japanese currency was offered at MUR 25.59 as compared to MUR 25.43 on the previous Tuesday.

Sterling fell to four-month lows against the dollar as investors scaled back their expectation of an imminent UK interest rate hike. Release on last Wednesday of Bank of England Monetary Policy Committee minutes that showed an 8-1 vote to leave interest rates unchanged led to doubts as to their commitment to future increases. The pound also took a hit as investors unwound their positions in higher yielding currencies such as sterling. Expectation of higher US interest rates would make US based assets and dollar more appealing. However, pound loss was kept in check after an upbeat UK manufacturing survey showed factory orders grew at their fastest pace in nine years in the three months to April.

Yesterday, the pound was trading at MUR 49.53 as against MUR 49.61 last Tuesday.

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

?Thursday 29 April

US Jobless Claims, US GDP

? Friday 30 April

Euro zone Economic

and Business sentiment

US NAPM,

US Chicago PMI

? Monday 03 May

US ISM manufacturing

?Tuesday 04 May

US Redbook,

US durable goods,

US Fed rate decision

Euro Zone PPI

<B>Contribution by HSBC</B>