The dollar navigated through confined ranges against major currencies as market players scrutinized economic data to possibly reinforced expectations that the Federal Reserve would continue spiking up the US interest rates. Following the release of the minutes of the Federal Reserve meetings on Jan 31, officials were under the beliefs that upward risks on core inflation remained. They also felt that the Central Bank?s monetary policy?s stance was nearing the point of equilibrium. Consequently, currency investors bought dollars, making the currency vulnerable to a minor sell-off; but dollar bulls were not disappointed as the greenback exited active New York trading with intraday gains. The main catalyst was the US Consumer price index for January that rose by a hefty 0.7 percent above economists forecast of a rise of 0.5 percent. Core prices, which exclude volatile food and energy prices climbed by 0.2 percent in line with economists forecast. Core prices? index was specially watched, as it would give clues as to the FED?s move in gauging monetary policy decisions. On a yearly basis, CPI inflation rose 4.0 percent, and core prices rose 2.1 percent, appearing in the upper quadrant of the Fed?s comfort zone of 2.0 percent.

<B>Market focused on US interest rate</B>

For the most part of the week, the market kept its focus on the US interest rate outlook, amid geopolitical concerns and soaring oil prices. Two cars exploded at the gates of Saudi Arabia?s Abqaiq oil facility on Friday when security forces fired on suicide bombers who were trying to storm the world?s largest oil processing plant, said Saudi officials. Despite the suicide bombing foiled, oil prices propelled to its highest level since early February.

Financial markets fully expected the Federal Reserve to increase rates in March by 25 basis points and another quarter percent hike in May or June. After that, market talked of a holding period for the FED, dampening the dollar?s yield advantage at a time when the European Central Bank would proceed with tightening the euro zone?s monetary policy.

Next week the economic calendar contains the release of Fourth-quarter growth, consumer sentiment, and the core personal consumption index, which exclude volatile food and energy prices.

Against the Mauritian rupee, the dollar was trading at MUR 30.888 compared to MUR 30.878 a week earlier. The Sterling was underpinned by two major factors during the past week. The release of a more hawkish than expected minutes of the last Bank of England?s interest rate-setting meeting and news of potential Merger & Acquisitions in the UK.

As far as the Bank of England?s monetary policy meeting was concerned, the market speculated that at least four members (out of nine) of the Monetary Policy Committee could have voted for an interest rate cut this month. However, the minutes actually did nothing to spook the market stating that the Bank of England possible rate cut was not for the immediate future. Actually, eight of the nine members had voted for keeping interest rates on hold.

Merger activities also provided continuous support to the British pound. L?Oreal SA, the world?s largest beauty company, said it was in the preliminary stages of considering a bid for Body Shop. On Friday, DP World, the United Arab Emirates Company envisaged to acquire UK ports operator P&O. The latter stated that it would go ahead with the deal worth USD 6.85 billion despite opposition from US politicians.

Against the MUR, the sterling hit a high of 54.34 (from 54.04) before stabilizing at MUR 54.00.

Yen was buoyed against major currencies in last week?s trading sessions, due to growing expectations that the Bank of Japan would ditch its ultra-loose monetary policy as early as March 2006. The yen peaked to 115.68 against the US dollar. Traders bought the yen and the latter rose against the US dollar. Two and five year Japanese government bonds yields soared to sky-high levels, signaling that the end of the near zero-rate policy was on the street corner. The yen stayed unruffled despite opinions by currency strategists that a too early change in borrowing costs might create disturbance for the Japanese economy.

<B>Contributed by HSBC

Vassan Caleemootoo</B>