Last week?s trading on the foreign exchange market saw the dollar giving up much of its recent gains as traders rushed to lock in profits and reduce their long dollar positions ahead of key US economic data due this week. The greenback had rallied recently after the Federal Reserve had signaled concerns about inflation in its accompanying statement when it raised the US base interest rate by ? % on 23 March. This was taken as a sign that the pace of US rate hikes could accelerate, which would benefit the dollar by making dollar-denominated assets relatively more attractive. However, traders opted for caution ahead of key US data due for release this week that could hurt the US currency and took profits on earlier long-dollar positions. As a result, the dollar lost ground against the euro, which surged to briefly cross the 1.3000 levels on Monday. Surprisingly, in spite of a larger-than-expected trade deficit figure for February (USD 61.04 billion against a forecast of USD 59 billion), the dollar rebounded after an initial hit in the aftermath of the release of the US trade data. Analysts say the larger-than-expected US trade gap might have already been anticipated.

Against the MUR, the dollar was offered at 29.31 yesterday compared with 29.32 a week earlier. The euro gained 43 cents over the past week to trade at 38.08 yesterday.

<B>Current account surplus</B>

The Sterling fell was pressured at the end of the last calendar week by weak economic data which dampened expectations of an official hike in UK interest rates. On Thursday, the Bank of England kept interest rates on hold for the eighth month running. The pound dipped on the news. Uncertainty over the outcome of the UK parliamentary election on May 05 also weighed on the sterling. However, a raft of upbeat UK economic data at the beginning of the current calendar week fuelled a rebound of the British currency.

A better-than-expected trade balance, an acceleration in house price inflation and a higher-than-expected reading on producer prices, all contributed to boost the sterling on Monday. Strong March UK retail sales figures released yesterday further increased traders? bets that the Bank of England had scope to raise interest rates and sent the British pound to an 11-day high against the dollar. However, the pound had shed some gains at time of writing yesterday as the dollar rebounded across the board.

Against the MUR, the sterling gained 39 cents last week to trade at 55.46 yesterday

The yen gained ground against the dollar on Monday after data showed Japan posted a larger-than-expected current account surplus in February. However, the Japanese currency was also pressured by the dollar rebound yesterday.

Against the MUR, the 100 yen was trading at 27.35 yesterday compared to 27.16 last week.

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

■ <B>Wednesday 13 April</B>
US manufacturing, housing and retail sales German PPI, French manufacturing, UK earnings

■ <B> Thursday 14 April</B> EU GDP

■ <B> Friday 15 April </B> US manufacturing, capital net flows and industrial production Japan manufacturing

■ <B> Monday 18 April </B> EU manufacturing

■ <B>Tuesday 19 April</B> US Redbook, PPI and housing German international trade EU industrial production UK RPI

<B>Contribution by HSBC</B>