The dollar staged a come-back at the end of last week, rebounding against the major currencies and shrugging off the impact of record-high oil prices and geopolitical worries over Iraq. The main reason behind the dollar rebound was market repositioning as traders took profits after several days of dollar selling, probably considering the dollar-selling spree as far-fetched. From around 1.2350 per euro, the greenback bounced back sharply on Friday to trade below the 1.2300 (per euro) level. It extended its gains at the start of this week as oil prices retreated, tempering worries over their negative impact on US economic recovery. Comments from Federal Reserve officials minimizing the negative effects on US recovery from higher oil prices underpinned the dollar rebound. Although oil prices and the situation in Iraq remain a focus, traders were, at time of writing, awaiting US durable goods and GDP data for a direction on the dollar. Throughout the early part of the past week the greenback had been weighed down by soaring oil prices and recent economic data whose weakness had thrown doubts on the US Federal Reserve’s aggressiveness in further raising interest rates.

Against the Mauritian rupee, the dollar was offered at 28.63 yesterday, against 28.61 a week earlier while the euro lost 57 cents over the week to trade at 34.78 yesterday.

The Japanese yen had been the best performing of the big currencies up to last Friday in spite of soaring oil prices, a factor that usually weakens the yen given Japan’s total dependence on oil imports. The buoyancy of Japan’s stock market and yen repatriation ahead of Japanese financial half-year (end September) were cited as yen-positive factors. However, the yen gave up its gains at the beginning of this week as the dollar rebounded on market repositioning, a retreat in oil prices and expectations of strong US durable goods and GDP data.

The Japanese currency was offered last week at MUR 25.97; after surging to 26.28 on Monday, it retreated to 26.14 yesterday.

Sterling shed almost one rupee over the past week to end at 51.75 yesterday. This reflected the pound’s overall retreat over the week. Soft UK retail sales and housing market data weighed on the sterling, reinforcing the view that UK consumer spending might have been reined in by the five consecutive rises in British interest rates over the past nine months.

Major data/events this week:

Wednesday 25 Aug

US durable goods and housing

Japan international trade

German CPI

Thursday 26 Aug

German Ifo business survey

UK CBI data

Japan employment

Friday 27 Aug

UK GDP

US GDP

Monday 30 Aug

US consumption

Tuesday 31 Aug

French unemployment

US manufacturing and consumer confidence.

<B>Contribution by HSBC</B>