Dollar bulls got a dismal week as the greenback fell under a euro and a Sterling stampede. A bag of dovish data gave investors more than one reason to ditch the US currency. Last week economic releases sparked concerns among investors that the US economy might be slowing down compared to the buoyant economic fundamentals noted in Europe and Asia. Negative dollar sentiment could persist, according to analysts, as the US economy had the potential of running out of steam. This could push the Federal Reserve to loosen monetary policy by cutting down interest rates. Some massive dollar selling were noted when core US inflation data grew just 0.1 percent in March, falling short of market forecast of a rise of 0.2 percent. In another report, a fall of 0.2 percent in industrial output in March came out spooking investors. Interest rate futures market, concurred with the dovish economy by factoring a 25 basis point fall before the year end in the benchmark federal funds rate.

In addition, US home foreclosures and failing mortgage applications raised concerns that housing sector woes could hurt that the economy, reinforcing the view that the FED might eased borrowing costs. On the other hand, the European Central bank, although leaving benchmark interest rates in the euro zone at 3.75 percent last Thursday, had signaled that it was considering raising interest rates in June or beyond to combat inflationary pressures.

The greenback got a breather when a rebound in the US equities market pushed traders to square up their positions. According to analysts, higher US stock prices boosted investor sentiment on the US economy. Next week dollar bulls would be looking for solace in a series of economic reports on gross domestic product, consumer confidence and housing data. Against the Mauritian rupee, the dollar was trading at MUR 32.448 yesterday compared to MUR 32.569 a week earlier.

Sterling rode above the $2 mark during most part of last week session despite it briefly dipped below after British retail sales data showed that sales did not grow as expected by economic forecast. In fact, retail sales rose 0.3 percent in March, less than the forecast of 0.5 percent. However, the retail sales deflator, on the other hand, rose to its strongest pace in six months, pushing the pound right back up.

Towards, mid-week, a flurry of corporate hedging activity was noted with British importers wanted to lock into cheap dollar rates in the event the pound fell below the $2 barrier. With Sterling trading at levels not seen in over a quarter century, exporters were seeing that competing into foreign markets would become difficult despite the fact that most of them had hedged their foreign profits from dollar weaknesses. Those who had been wrong-footed were hoping that the bubble would burst and that Sterling would retreat to lower levels allowing them to start fresh hedges. Against the Mauritian rupee, the Sterling was trading at MUR 64.83 yesterday as compared to MUR 64.84 a week earlier.

The yen had a seesaw session during last week trading. It rose when news hit the market that the Chinese economy might be overheating and that near-term Chinese interest rate increase might weigh on stocks and risk appetite across the globe, leading investors to unwind carry trades. This helped to boost yen buying as the Japanese currency were used to fund the purchase of higher-yielding assets. Robust growth in Japan’s tertiary sector index of service industry activity rose 1.0 percent in February from January, when forecast predicted a 0.5 percent fall. However, the yen could not cruise higher and finally fell when fears of the overheating of the Chinese economy calmed down and Asian stock markets picked up. Against the Mauritian rupee, the yen was trading at MUR 27.38 as compared to 27.23 same as a week earlier.

Vassan CALEEMOOTOO</B> Contributed by HSBC</I>