The dollar was mostly driven by position adjustment by dealers, as a batch of important US data was released, as well as geopolitical concerns at Iran’s announcement that it possessed nuclear technology.

Financial markets shifted back to thinking that the European Central Bank would raised rates in June, while at the same time trimming back some of their expectations on how high US interest rates would rise in the coming months. Together with a batch of economic data, the dollar was thrown into the limelight with pressures coming from most major currencies across the board.

However, the US Trade data came out positive as the deficit for February were smaller than expected. Then all heads turned to foreign capital net flows into the United States and the visit of the Chinese President HU Jintao to Washington making the market focus shifting from temporary movements in interest rates differentials to global imbalances.

On the other hand, the euro had some mishaps. The common currency failed to break above a fibonacci retracement level at $1.2168, the session high, triggering a barrage of selling which gained impetus as the US trade data were released.

According to the US government, the trade gap for February was $65.7billion, the third widest on record but narrower than economist forecast of $67.5billion. Import fell 2.3 percent from the previous month and trade deficit with China contracted by 22.70 percent.

Market activities slowed considerably towards the end of the week ahead of the Easter weekend. Data on Thursday showed a rebound in US retail sales in March and a modest improvement in April consumer sentiment that supported the US treasury yields above 5 percent for the first time in nearly four years. In addition, the greenback was trapped in between tight ranges as traders saw it as hazardous to try to predict next week’s currency movements with a slew of market moving events including Hu visit to Washington.

Against the Mauritian rupee, the dollar was trading at MUR 30.989 same as last week.

The Sterling firmed through most of the week, moving in tune with broader currency activity, after faltering momentarily when a report showed that UK trade deficit grew unexpectedly. The pound spiked down when the trade deficit came out as 6.478 billion pounds in February compared to a forecast of 5.7 billion pounds.

However, the Sterling fell back on its feet, as the market started to refocus on broad dollar weakness. In addition, wild speculation that British companies might be the target of mergers and acquisitions boosted the pound. In fact, the Nasdaq Stock Market stated that it acquired 15 percent stake in the London Stock Exchange to become its biggest stakeholder. According to analysts, Nasdaq Stock Market would have the first cut in acquiring the company or blocking any rival bidder.

Yesterday, the pound was trading at MUR 55.36 as against MUR 54.48 last Tuesday.

The general nervousness in keeping a long dollar position was quite beneficial for the Japanese currency. The dollar shuffled in narrow ranges as it failed to breach resistance at 119 yen but did not fall below mid-117 yen. According to analysts, the focus was still on the US interest rate increase in May, while the market expected the Bank of Japan to raise rates as early as July for the first time in five years. In fact, in anticipation of the BoJ interest rate increase, many Japanese life insurers were more inclined to buy Japanese government bonds.

Yesterday, the Japanese currency was offered at MUR 26.55 compared to MUR 26.42 last Tuesday.

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

■ <B>Wednesday 19 April </B> US Mortgage Indx, CPI

■ <B>Thursday 20 April </B> US Jobless Clms

■ <B>Friday 21 April</B>

■ <B>Monday 24 April </B>

■ <B>Tuesday 25 April </B> US Redbook, Cons Conf’ce

<B>Vassan Caleemootoo

HSBC Mauritius Treasury and Capital Markets</B>