The dollar staged one of its biggest one-day fall since the start of the year against a basket of currencies due to dovish data. Even the nomination of the Treasury secretary did little to brake the dollar slide.

The dollar started the week with a bounce on news that the US President George Bush had nominated Goldman Sachs chairman Henry Paulson as the new Treasury secretary. His nomination put an end to a big wave of speculation as to who would replace John Snow. Many analysts believed that the nomination of Henry Paulson would leave unchanged the view that Washington would let the dollar drift downwards to correct “global imbalances’’– code name for the massive US trade deficit and trade surpluses in Asian economies. His nomination was perceived as being in line with current monetary policy and would be unlikely to modify the current and emerging confrontations faced by the greenback.

After Paulson’s nomination, market attention suddenly shifted to the US consumer confidence and job data which would give clues as to the current US economic outlook and the direction that the US Federal Reserve would take, however, they both came out disappointing. US consumer confidence fell to a three-month low in May while job creation was weaker-than forecast with only 75 000 non-farm jobs created. Inflationary pressures, as measured by the hourly earnings, were also dovish. These data did little to give a respite to the browbeaten dollar. Matters worsen as speculations ran rampant that the European Central Bank might be looking to hike up interest rates by 50 basis points in the eurozone this week. With inflationary pressures building up in the 12-nation bloc, analysts were thinking that the ECB would increase the Eurozone refinancing benchmark to 3 percent from the current 2.5 percent. Furthermore, in its Financial Stability Review, the ECB spooked traders when it warned that any unravelling global imbalances could trigger downward pressure on the greenback.

<B>US dollar traded at MUR 30.98 yesterday </B>

The Sterling was on track to chalk up its biggest one-day gain against the dollar last week, as the US currency came under heavy selling pressure. According to analysts, the abundance of UK’s data should support the pound. The latter gained in recent weeks on expectations that the Bank of England would raise interest rates from 4.5 percent this year as Britain’s property market rebounded. However, the pound slipped against the dollar after data showed British house prices rose only modestly in May casting some doubts on the recent revival in the property market.

According to Nationwide Building Society, prices rose by 0.2 in May from the previous month. The Sterling was also rattled in overnight trading after an explosion at a chemical plant in northern England. However, the pound eventually recovered due to poor US dollar sentiment and foreign interest in UK companies.

The Sterling was traded at MUR.58.29 as against MUR 58.38 last week.The yen started the week on a firm footing against the dollar after the nomination of a top Wall Street banker for Treasury Chief did little to dispel suspicions that Washington wants a weaker dollar. On the other hand, Moody’s Investors Service upgraded its rating outlook on Japan’s domestic debt to positive from stable. However, yen gains were range bound and even option-related offers to sell dollar by Japanese exporters did not propel the yen to new highs.

The yen was sold at MUR 27.83 as compared to MUR 28.00 last week.

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

■ Wednesday 07 June : US Mortgage Indx EZ Retail Sales

■ Thursday 08 June: US Jobless Clms EZ ECB rateGB Ind prod, BoE rate

■ Friday 09 June : US Int’l Trade GB Trade

■ Monday 12 June: US Fed Budget, GB PPI

■ Tuesday 13 June : US PPI, Retail Sales GB CPI

<B>Vassan Caleemootoo

HSBC Mauritius Treasury and Capital Markets</B>