Last week trading on currency market saw the European single currency hitting a fresh year low of $1.2050 against the greenback. Several factors were behind the sluggish performance of the euro. The single currency lost ground against the dollar on interest rate cut speculation ahead of this coming Thursday?s European Central Bank meeting.

Speculation was fueled by comments from a number of ECB officials. To start, ECB President Jean Claude Trichet comments that ECB would reassess its outlook for gradual euro zone recovery, if consumer spending fails to pick up, increased speculation that the ECB could cut interest rates. Along the same line, ECB council member Guy Quaden said the ECB had some room to manoeuvre if needed, even though its official 2 per cent rate was ?extremely low?.

The strength of the euro was further undermined by comments by German Economy Minister that high real interest rates and the strong euro were holding back German economic growth. Worse-than-expected German IFO business climate data, which fell to 95.4 in March, added more gloom to an already bearish euro.

On top of the negative factors besetting the euro, the dollar benefited from a positive change in US interest outlook following hawkish remarks from Federal Reserve governors. Last Thursday St Louis Fed President William Poole and Fed Board Governor Donald Kohn said a US interest rate rise was inevitable given the recent indications of US economic growth. However, dollar gains were kept in check as speculators reversed the trend and bought back the euro. Disappointment over euro?s failure to break through the 1.2050 level and doubts over ECB eventually cutting interest rate were behind euro?s rise.

<B>Bank of England meeting next week</B>

Against the Mauritian rupee, the common currency was trading at MUR 32.78 as compared with MUR 32.92 a week earlier.

The Japanese yen powered against the dollar and the euro after the rating agency S&P changed its outlook for Japan from ?negative? to ?stable?. The news was taken as a sign of confidence that the economic recovery was beginning to take hold. The focus is now on the key 105-yen area, seen as a major defence line for the Japanese government. The question will be whether government will tolerate the yen to break through the 105 level or not, especially at a time the nation?s economy is recovering.

Yesterday, the Japanese currency was offered at MUR 25.55 as compared to MUR 25.04 on the previous Tuesday.

Sterling fell against the dollar on the back of comments by Bank of England Governor Mervyn King, pointing to the risk on UK growth from a strong pound. However, the pound regained some ground, after robust consumer credit and record mortgage lending data bolstered expectations for higher interest rates to curb consumer borrowing. The Bank of England interest rate setting meeting is due next week.

Yesterday, the pound was trading at MUR 49.04 as against MUR 49.30 last Tuesday.