Last week trading on the currency market saw the dollar?s rally come to a halt, as the European single currency climbed to its two weeks high above the $1.2000 level before slipping back to trade around $1.1950 level. The greenback was dented after first quarter US gross domestic product came in below forecast last Thursday. The hotly anticipated number came in at 4.2 percent against a growth forecast of 5 percent. The market reacted negatively by selling dollar on expectations the Fed might not be as quick to raise interest rates as the market had anticipated.

It is widely expected that the US will raise its interest rates by up to 75 basis points this year. The disappointing US GDP figure was indicative of market uncertainty as to the timing of the rise. Whilst from the medium-term perspective, investors are optimistic on the US economy, and think US interest rate will rise, there is so much uncertainty in the very short term. Market players are hesitant to buy dollar aggressively especially with what is going to be said at yesterday?s Fed meeting.

The market is expecting the Fed to remove the word ?patience? from its statement in relation to the timing of US interest rate hike. It will also be wary of US non-farm payrolls data. Expectations have already been revised lower over the week to 150,000. A reading below the 100,000 will likely cause a reduction in the size of the expected rate hikes this year.

Against the Mauritian rupee, the common currency was trading at MUR 33.35 as compared with MUR32.80 a week earlier.

Over the week, the Japanese currency weakened against the dollar as Japanese share prices fell on worries about a possible slowdown in China?s economy. The Japanese stock market reacted negatively to comments from Chinese Premier Wen Jiabao. He wanted lending to steel, cement, aluminium, and other industries such as real estate to slow down. China is expected to raise its lending rates by 50 basis points.

The gradual tightening of monetary policy in China will mean the economy will grow at a much slower pace. China is Japan?s second largest export market and accounts for nearly 80% of Japan?s export growth, thus playing a key role in Japan?s recovery. The Nikkei, which has been attracting foreign investors partly due to Japan?s growth outlook, gapped lower.

Yesterday, the Japanese currency was offered at MUR 25.39 as compared to MUR 25.59 on the previous Tuesday.

Sterling pulled up from four-month lows against the dollar after disappointing US economic growth numbers threw the greenback off an upward path. Furthermore, pound found support as nation wide building society house price data showed continued fast growth, thus supporting strong expectations of a UK interest rate hike. It is expected that the Bank of England will raise its interest rate by 25 basis points on this coming Thursday.

Yesterday, the pound was trading at MUR 49.55 as against MUR 49.53 Tuesday before.

Major data-events this week:

Wednesday 05 May Eurozone Retail Sales US ISM non-manufacturing

Thursday 06 May UK BOE Rate, Eurozone ECB Rate, US Jobless Claims

Friday 07 May US Non Manufacturing Payrolls, US unemployment

Tuesday 11May US Redbook, UK Industrial Production