The dollar roamed around freely pushing other major currencies around during most of last week. In highly volatile technical trading sessions, dealers were seen whittled away bets against the US currency.

The paradox of it all was that US trade data depicted a dismal picture for the dollar, notably a component demonstrating poor export data and another that attributed deterioration to both energy and non-energy products. Furthermore, strategists still believed that the wide US deficit would continue to weigh heavily on the dollar and that the US government should attract capital to finance it in times when global interest rates were sponging all excess liquidity.

The dealers, however, decided otherwise squaring their short dollar positions and taking profit. Towards the middle of the week, the dollar slipped as the European Central Bank’s chief stressed on inflationary pressures in the eurozone. Overnight, the euro bolstered as the market widely expected the ECB to raise interest rates, currently at 3 percent, at its next meeting in October. Market players were poised ahead of the Group of Seven Finance ministers’ meeting.

The greenback was traded cautiously after US retail sales in August showed a surprised rise. In fact, US retail sales gained 0.2 percent as opposed to a fall of 0.1 percent per Wall Street forecast. The euro suddenly came under fire as traders were wary that the G7 officials would make fresh appeals for more currency flexibility in the emerging Asian economies. Despite the rapid ebb and flow generated by such speculation, dealers were still trading within the confines of recent trading ranges. In fact, most traders had already wiped out their positions against the dollar. Analysts believed that the Federal Reserve would not hike up interest rates in the coming months due mainly to slowing US growth and softer inflation in coming months as reasons for a stable policy. The US dollar traded at MUR 32.713 yesterday, as opposed to MUR 32.703 last week.

The Japanese yen started the week falling prey to dovish economic data. This encouraged many players to pile up bets against the Japanese currency. Expectations were rising that the Bank of Japan would be slow in raising rates from 0.25 percent in the month ahead, making the yen the worst yielding major currencies. Currency strategists believed that the currency might stabilized ahead of the Group of 7 meeting of finance ministers in Singapore with the potential risk that the Chinese yuan might be pressured into revaluation.

Yen to reflect Japanese economic recovery</B>