Last week saw the dollar going thru a roller coaster ride. At the close of the week, the greenback rallied against most currencies after Federal Reserve Chairman Alan Greenspan said that market forces and tighter US fiscal policy should stabilize and may diminish the gap of the US current account. According to analysts, Greenspan took a more sanguine look at the deficit and laid down some of the conditions that could improve in the present year and the next. However, analysts still believe that the specter of the twin deficits ? the US budget and the US trade ? would hang over the US economy and would not vanish anytime soon. And this would be mitigated as a dollar negative by the market. The US President George W Bush submitted a proposal to Congress that aimed at narrowing the budget deficit from 3.5 percent to 1.7 percent of Gross Domestic Product by fiscal year 2008. However, that forecast did not seem to include the military costs in Iraq as well as the Bush?s plan to overhaul social security. The gist of the Bush proposal had already been leaked to the press and the market had already priced the information in. In the earlier part of the week, the dollar was seen tumbling down to dovish US jobs data reports before roaring back. The US non-farm payrolls for January increased by 146,000 compared to a forecasted amount of 190,000. The previous three months? job gains were also revised lower, although the January unemployment rate fell to 5.2 percent from 5.4 percent. In addition, currency dealers digested a slew of headlines and news from the two-day meeting of the Group of Seven Finance ministers and central bankers in London. In fact, the dealers were down scrutinizing all news related to whether China would lose its currency peg to the dollar.

Against the Mauritian rupee, the dollar was trading at MUR 28.98 yesterday compared to MUR 28.84 a week earlier.The Sterling traded at six week highs against the euro and stabilized against the dollar on Friday, consolidating gains made earlier this week following stronger-than-expected UK mortgage and service sector data. Analysts believed that the Sterling?s strength against the euro might have been due to lower-than-expected euro zone inflation data, which reduced expectations of a medium term euro zone interest rate rise. Throughout the week, the pound had been boosted by positive data and briefly shot up against the dollar, after weaker-than-expected US job data were released. The sterling strength proved short-lived as dollar sentiment grew on the hawkish comments of Federal Reserve Chairman Alan Greenspan, who played down the US account deficit.

Against the Mauritian rupee, the Sterling was trading at MUR 53.87 yesterday as compared with MUR 54.38 a week earlier.

The yen fell to one month low against the dollar, after China told the world?s richest nations that it would revalue its Yuan but not anytime soon. China came under renewed pressure to ease the yuan peg to the dollar and this was seen pushing the other Asian currencies higher. In the past few months, speculation about the timing of the Yuan revaluation drove the yen higher. The market viewed the yen as a proxy for the Yuan as it is a widely traded Asian currency.

Against the Mauritian rupee, the yen was trading at MUR 27.70 as compared with MUR 27.99 a week earlier.

MAJOR DATA/EVENTS THIS WEEK:

■ Wednesday 09 Dec

US Mortgage indx,

GB Trade bal?ce

■ Thursday 10 Dec

GB BoE rate

US jobless claims,

Intl trade, Fed budget

■ Friday 11 Dec

Fr Trade Bal?ce

■ Monday 14 Dec

■ Tuesday 15 Dec

US Redbook, Cap net flows

Contribution by HSBC