A wave of dollar selling started, fuelled by the uncertainty looming around the big question of how many more interest rate hikes were left in the sleeves of the US Federal Reserve Bank. Currency dealers shunned the greenback and aggressively placed bets on the euro, in anticipation of a hawkish stance from Jean-Claude Trichet. Even good news for the dollar were brushed aside as market psychology got its way over economic fundamentals.

The euro soared as traders focussed on whether the euro would close above crucial resistance at $1.2325. According to chartist believers, closing above resistance would accelerate the upward movement in the euro and would propel it to new heights. A few investment banks already started building large long euro positions, anticipating that the US FED would soon put an end to its interest rate raising campaign; hence, removing the major support pillar for the US currency. The market, on the other hand, talked of a growing expectation that the ECB would continue increasing borrowing costs. With the dollar interest rate advantage possibly shrinking, the massive US trade deficit could be thrown back into the picture. The US trade deficit expanded to a record $723.6billion last year, approximating 5 percent of gross domestic product.

However, the ECB chairman, Jean-Claude Trichet poured cold water onto a heated expectation that the ECB would increase rates in the eurozone in May. He stated that the ECB did not share the same view as the market and did not expect the ECB to increase rates in the eurozone by 25 percent in May. Swiftly, the euro retreated piercing through key chart levels. The ECB maintained Interest rate at 2.50 percent in April and Jean-Claude Trichet blunt remarks, disappointed euro bulls.

Toward the end of the week, the dollar staged a rally across the board, when robust job reports reinforced market’s expectation that the FED would raise rates at least one more time before the end of the year. Some analysts noted that the US economy was expanding at a good clip, whereas others cautioned that the structural weaknesses of the US currency were still lurking in the backdrop. Besides, the possibility remained that foreign central banks might be diversifying their currency reserves from US dollars into euro.

Against the Mauritian rupee, the dollar was trading at MUR 30.989 compared to MUR 30.969 last week.

The pound showed some resilience</B>

&#9632; <B>Thursday 13 April:</B>

&#9632; <B>Monday 17 April: </B>