The euro broke back up above the 1.2550 resistance level on cautiously bullish euro sentiment last week. The euro had already begun to correct higher after last week?s sharp dollar correction took the single currency to technical support around 1.2330 and after last Monday?s ECOFIN meeting failed to produce enough adequate strong dollar rhetoric to trigger an extenuation of the dollar?s correction.

On Friday, however, the euro gave back its gains, falling one full percent versus the dollar after newswire reports that eurozone ministers attending a G7 meeting next month will say that further strength in the euro could cause the European Central Bank to cut interest rates. The euro fell from around $1.2685 after the comments, triggering successive stop-loss orders to bring the single currency to a round $1.2567.

Foremost in investors? minds stands next February 6,7?s G7 industrial nations? finance ministers meeting in Florida, where the dollar policy is expected to be debated. Precursor to the G7 meeting is the preliminary G7D meeting, currently being held in Brussels, which calls together the sherpas or deputy ministers of the G7 countries, but no statements are expected to be released after such talks. Traders had already started to trim some of their long euro positions ahead of the G7 meeting.

Against the Mauritian rupee, the common currency was trading at MUR 33.08 as compared to MUR 32.68 a week earlier.

The yen strengthened against the dollar on Monday on strong commercial selling interest and exporters? sales, which are thought to be end-of-month phenomena. Nevertheless, persistent concerns over Japanese intervention to buy back dollar capped the yen?s advance above the defence line of 105 yen. Dealers suspected intervention from the part of the authorities on Friday after the dollar came within three-year lows around 105.70 yen, then rebounded to 107 yen. Japan spent some 20 trillion yen ($188.6 billion) on intervention last year to help support an export-led recovery of the economy, and traders expect it has spent another six trillion yen so far in 2004.

Elsewhere, the yen came under brief selling pressure after the Nihon Keizai reported over the week-end that the Financial Services Agency (FSA) would investigate loan records at a unit of the nation?s fourth-largest banking group, UFJ Holdings. The newspaper said the FSA had discovered that the situation of many UFJ borrowers might be more critical than that implied by the bank?s official statements.

Yesterday, the Japanese currency was offered at MUR 24.84 as compared to MUR 24.62 on last Tuesday.

Sterling gave off earlier gains afforded by strong economic data on Friday, as market players focused on what may be a critical round-about in Premier Tony?s Blair political career. On Tuesday, Blair faces the risk of his first parliamentary defeat since he became prime minister in 1997, over controversial plans to increase higher education fees. The next day, senior judge Lord Hutton is due to deliver the long-awaited report on the suicide of Iraq weapons expert David Kelly, which could point to Blair?s government involvement in the Iraqi conflict.

The political agenda overshadowed positive retail sales and growth data released earlier, which supports the possibility of rate hikes as early as next February. Upbeat manufacturing sales report, released by the British Chambers of Commerce, and hawkish Bank of England?s minutes of its last monetary policy meeting also lend support to the rate hike speculation.

Yesterday, the pound was trading at MUR 48.08 as against MUR 47.19 on last Tuesday.

Major data/events this week:

Wed 28 January

Ger Gfk index, GB Gfk survey, US durable goods

Thu 29 January US jobless claims, US FOMC minutes, JP unemployment

Fri 30 January Ger retail sales, US GDP, US NAPM NY, US Chicago PMI

Mon 2 February EZ Reuters Mfg PMI, GB Reuters Mfg PMI, US ISM Mfg

Contributions by HSBC