Last week trading on the currency market saw the dollar trading near its recent peaks against the European single currency.

The greenback remained buoyant after the US Federal Reserve Chairman Alan Greenspan gave an upbeat assessment of the US economy, but lacked impetus for fresh gains. Little emerged to give new direction to the dollar, since Alan Greenspan’s testimony before the Congress reinforced expectations of gradual US interest rate rises by saying US growth was on a solid footing and inflation was not a threat. This took the market off guard as market players were selling the dollar at the start of last week following some soft US data release.

The European common currency was trading at its four month high just before Greenspan’s bullish economic outlook triggered the dollar rally. As long as rising US interest rates remains the underlying scenario, this should continue to be dollar positive. For this week, durable goods on Wednesday, and Gross Domestic product data on Friday will be key tests for the dollar, after Greenspan said last week that recent weakness in the US economy was transitory. Other themes that are likely to dominate this week trading include market positioning, volatility and technicals, as well as the outlook for monetary policy in countries other than the US.

Against the Mauritian rupee, the euro was trading at MUR 34.62 as compared with MUR 35.26 a week earlier.

Over the week, losses in Tokyo stocks and a surprise fall in Japan’s tertiary sector index, which gauges conditions in the service sector, weighed down the Japanese currency against the dollar. Tokyo’s benchmark Nikkei stock average was down, as bank stocks fell on uncertainty over the fate of big struggling borrowers of troubled UFJ bank, Japan’s fourth-biggest lender. Yen attractiveness may be weakened as long as uncertainty remains over the fate of troubled borrowers.

Yesterday, the Japanese currency was offered at MUR26.02 as compared to MUR 26.31 on the previous Tuesday.

Sterling fell prey to the dollar, as greenback’s dominance across the board overshadowed upbeat UK growth data. Sterling fell as UK second quarter growth data came in as forecast, but short of last minutes expectations of an even stronger number. Recurrent theme of a likely UK interest rate hike for the fifth time during the year will continue to support the pound.

Yesterday, the pound was trading at MUR 52.59 as against MUR 53.01 last Tuesday.

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

Wednesday 28 July:

US Durable goods.

Thursday 29 July: US Jobless Claims.

Friday 30 July: Eurozone Business and Consumer sentiment, US GDP, US NAPM, US Chicago PMI.

Monday 02 Aug: US ISM Manufacturing.

Tuesday 03 Aug: Eurozone PPI, US Retail Sales, US Redbook.

<I>Contribution by HSBC