The main highlight of last week currency trading was how quickly the market shifted its attention from the chances of a US interest rate hike, to ponder on the actual pace of a widely accepted US rate hike. Last Friday?s release of unexpectedly robust US employment data ignited new breath in the greenback against major currencies.

The April report showed that non-farm payroll rose by 288,000 compared to a revised 337,000 in March while economists forecasted a rise of only 173,000 in April. Furthermore, the jobless rate dipped to 5.6 percent compared to market expectations of an unchanged 5.7 percent. The back-to-back monthly gains in March and April were the strongest in four years.

Speculation about the possible hike of the US interest rate by the Fed has grown rampant, as investors are expecting a hike in June as opposed to Aug-Sept. Timing and pace of the rate hike, according to analysts, will support the dollar by pushing up yields of US assets and burnishing their allure to foreign investors.

Against the Mauritian Rupee, the dollar was trading at MUR 28.10 compared to MUR 27.95 last week.

Sterling started the week on a firm footing, benefiting from a quarter point hike in UK interest rate to 4.25 percent. The Bank of England maintained that price pressures were building despite recent strength in the pound. However, later in the week stronger than expected US employment data stung the sterling and the latter fell by one percent against the greenback.

This coming Wednesday will see the release of the Bank of England?s quarterly inflation report. The report is supposed to give clues as to why the central bank has raised interest rates as well as how aggressive it might become in the coming months.

Yesterday, the pound was trading at MUR 49.86 as compared to MUR 49.55 same day last week.

Over the week, the dollar surged to an eight-month high against the yen. The stronger than expected US job figures dented the Japanese currency. Furthermore, analysts believe that the yen will also continue to receive a drubbing from major rivals due to factors other than brightening US fundamentals. Yen selling should continue particularly on news of a gradual slowing down of China?s economy. This will definitely have a negative impact on Japanese stocks and the yen. Japanese stocks will be affected by the slowdown in the Chinese economy, as a drop in manufacturing and consumer spending will likely drag down the share of Japanese exporters.

Major data-events this week:

Thursday 13 May US Jobless Claims, US Retail Sales US PPI

Friday 14 May US CPI, US Industrial Production

Tuesday 18 May UK CPI, UK Retail Industrial Production

Eurozone Industrial Production, US Redbook

Contribution by HSBC