Financial and stock markets across the globe were delighted when European banking heavyweight HSBC posted robust first quarter earnings and oil prices started to dip. Investors took their cues and started to bet on riskier assets.

The US dollar rallied broadly last week after the report on April retail sales came out bullish, fuelling expectations that the Federal Reserve was thru with cutting interest rates. Retail sales, excluding hard-pressed auto sector, rose by 0.5 percent which came out better than economists? forecast. This showed that the US consumers remained resilient despite housing turmoil. The New York Board of Trade?s dollar index, which tracked the dollar?s performance against a basket of currencies, rose 0.4 percent to 73.246. In addition, short-term interest rate futures, which stalked market expectations for FED policy, showed a 92 percent perceived chance that the central bank would not cut overnight borrowing rate any time soon. As a result, the euro fell to a session low at $1.5431. The euro zone interest rates remained at 4 percent, hence, burnishing the allure of European assets as opposed to US denominated ones.

Again, sentiments for the euro soured when France Credit Agricole reported its write-down due to the US subprime mortgage sector. This gave clues that the euro zone was not totally isolated to the subprime crisis and analysts were debating that signs of a slowdown in the Europe could cause the European Central Bank to cut interest rate sometimes this year.

Throughout most of the remaining week, the euro remained muted against the greenback. In fact, euro rallies ran out of steam at $1.5570, which currency strategists believed to be an important psychological level if the European currency wanted to travel to $1.5700.

The US dollar traded at MUR 27.50 as compared to MUR 26.932 as last week.

The Japanese currency continued to lose ground against the greenback as investors snapped up riskier asset such as stocks, invigorated by a dip in oil prices and gains in stock markets.

Investors ditched the low yielding yen for higher yielding currencies in carry trades. According to analysts, the upward movement in equities was driving the dollar/yen upwards. In fact, the yen had already crossed the 103.90 level and was marching towards 104.90. However, toward the end of the week, the yen firmed as US industrial production was weak and capacity had fallen. The yen rose against the dollar and the dollar/yen was seen trading at 104.64 yen.

The Japanese yen was traded at MUR. 26.47 When compared to MUR 26.06 last week.

Sterling got hammered when the Bank of England?s quarterly report showed inflationary pressures stabilizing, while economic growth slowing down. UK?s job report, which showed the number of people claiming unemployment benefit, rose for the third consecutive month while average earnings growth posted a big jump. According to analysts, these two conflicting forces could limit the scope for future interest rate cuts, negatively impacting economic growth and thus the currency. The pound fell as low as $ 1.9366 but recovered slightly piggy-backing on a broad dollar sell-off. However, the fall of the pound was welcome by BoE Governor Mervyn King who believed that a fall in sterling would rebalance the UK?s economy and would encourage ?a reassessment by investors of the sustainable value of the sterling or an increase in the risk premium required for holding sterling assets?.

The Sterling was traded at MUR. 53.702.94 compared to MUR 52.94 last week.

Major data/events this week:

Wednesday 21 May: US Mortgage index

Thursday 22 May: US Jobless Claims

JP BoJ minutes

Friday 23 May: US Michigan Prelim

Monday 26 May:

Tuesday 27 May:

HSBC Mauritius Treasury and Capital Markets

Vassan Caleemootoo