Poor market sentiments followed the US currency like a faithful dog. Soft economic data, sluggish corporate earnings and weak housing market were the catalysts weighing down the dollar against the basket of currencies.

According to the US Commerce Department, home construction starts fell 10.2 percent last month. In addition, U.S. consumer report showed that prices rose at its highest rates since four months in September, but core prices, which exclude volatile food and energy costs, were in line with forecast.

According to analysts, such data would most likely dominate market sentiment and might push the Federal Reserve to review overnight borrowing rate downward at its next policy meeting. The implied prospects for a quarter percentage point cut rose to 50 percent from 38 percent last week.

The dollar took another blow when Bank of America?s third-quarter earnings came out weak due to mounting credit losses. This revived concerns that the credit crunch was far from disappearing. In addition, a draft statement from the Group of Seven nations failed to address the greenback?s weaknesses, indicating that there would be no intervention to support it.

Toward the end of the week, the dollar rebounded from record lows against the euro as many traders were holding the view that the US currency might be oversold.

<B>The US dollar traded at MUR 31.008 yesterday same as last week. </B>

Sterling suffered some blows but managed to keep afloat due to robust retail sales numbers and growth data. UK consumer price inflation came out at 1.8 percent in September, below economists? forecast of 1.9 percent.

This did not help to quell speculations that the next move of the Bank of England (BoE) would be a cut. In addition, the Bank of England?s monetary policy minutes showed that David Blanchflower voted for a rate cut. The market, on the other hand, had expected a unanimous vote to keep rate constant at 5.75 percent. However, the pound recouped most of its losses when wage data released came out bullish. Average earnings, in the UK, grew at a fast pace to reach an annual 3.7 percent in the three month to August. Furthermore, British retail sales data rose to an annual 6.3 percent rate on the year in September. All these helped to cool down expectations that the BoE?s next move was to cut inflation rate.

Pressures on the BoE to cut rates ultimately decreased when the Office of National Statistics? first estimate showed that the economy expanded at an annual rate of 3.3 percent in the third quarter, up from 3.1 percent the previous quarter.

<B>The Sterling was traded at MUR 63.13 as against MUR 63.33 last week</B>

The yen lost ground as Asian stock markets rebounded, sparking demand for risky carry trades whereby low-yielding yen was used to buy assets in higher yielding currencies. The yen gained for a few sessions in mid-week as Asian equities slid. Risk adverse investors unwound carry trades and bought back the yen. However, the Japanese currency got a breather as gains in equities market bolstered risk appetite and helped curb the unwinding of carry trades.

<B> The Japanese yen was traded at MUR 27.05 as against MUR 26.41 last week</B>

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

■ <B>Wednesday 24 Oct: </B> US Mortgage index

■ <B>Thursday 25 Oct: </B>

US Jobless claims,

■<B>Friday 26 Oct: </B> GB Mortgage

■ <B> Monday 29 Oct: </B>

■ <B>Tuesday 30 Oct: </B> US redbook

<B>Vassan Caleemootoo HSBC Mauritius Treasury and Capital Markets</B>