Last week trading on currency market saw the European single currency struggling near a two-month low against the dollar while waiting for further direction. The Euro was already in a corrective mode against the greenback on growing optimism about the US economy following the Federal Reserve decision to cut US interest rate by 25 basis points in late June.

Far from being refrained, the common currency kept its consolidation path, as it was further pressured after ECB President Duisenberg surprised the market by saying officials were relieved that the euro?s strong appreciation trend had been disrupted.

By the same token, German Chancellor Gerhard Schroeder also expressed concern about the euro?s trend, suggesting he wanted a weaker euro to boost the euro zone exports. At this point, it is not still clear whether the euro is merely correcting its level or if a weaker euro has become the trend. In this connection, Federal Reserve Chairman Alan Greenspan?s report on the US economy and Fed policy on Tuesday 15th July and Wednesday 16th July will be the key. In addition, US data such as core retail sales and CPI this coming week should provide more evidence that the economy is growing and disinflation fears are waning.

However, ahead of Greenspan?s semiannual testimony before Congress, the dollar was weighed down by comments from IMF chief economist Kenneth Rogoff. The latter underlined a weaker dollar was needed to correct the US current account deficit.

Against the Mauritian rupee, the common currency was trading at MUR 33.53 as compared with MUR 32.67 a week earlier.

Over the week, the Japanese currency kept an upbeat tone against the dollar as investors grew optimistic about the outlook for Japan?s economy on brightening corporate sentiment, robust macro-economic data, and rally in Japanese stocks. In fact, foreign investors? buying of Japanese shares has risen in June to the highest level since March 1999.

However, yen?s rise was kept in check after Finance Minister Masajuro Shiokawa fired out warnings saying the yen was too strong.

Yesterday, the Japanese currency was offered at MUR 25.36 as compared to MUR 25.22 on last Tuesday.

Sterling ended last week lower against the dollar on the back of unwinding of carry trades and surprise UK interest rate cut. Carry trade involves the sale of a low yielding currency like the dollar and the purchase of a high yielding currency like the sterling.

All throughout the week the unwinding of the carry trade has resulted in steep fall in high yielding sterling against the dollar. In addition, the sterling was hurt by the surprise 25 basis points cut in UK interest rate by the Bank of England. This move has robbed the sterling from its advantageous yield differential appeal and triggered an avalanche of sterling sale.

Yesterday, the pound was trading at MUR 47.98 as against MUR 49.07 on last Tuesday.

Major data/events this week:

Wednesday 16 July

US Consumer Prices, Retail Earnings, & IndustrialProduction

Thursday 17 July

Eurozone Industrial Production, US Jobless Claims and US Philadelphia Fed Survey

Friday 18 July

German PPI, and US Michigan Sentiment Preliminary

Monday 21 July

US Federal Budget

Tuesday 22 July

US Redbook

Contribution by HSBC