Last week the dollar got roughed up by major currencies after several central banks expressed growing interest in the euro. The Group of 7 super nations’ communiqué plunged the dollar in deeper waters when it singled out China in their call for enhanced flexibility in exchange rates.

Actually selling pressures already pored upon the US currency after Sweden announced that it had restructured its foreign exchange reserves and had reduced its US dollar share. The Swedish’s central Bank, the Riksbank, increased euro holding of its reserve from 37 percent to 50 percent.

In addition, the Riksbank also announced that it had cut its US dollar reserves to 20 percent from 37 percent. Despite the size of Sweden’s foreign reserves being small in relative term, approximately $21 billion, the news of the shift did make a big splash.

After the Sweden, the Russian Finance Minister Alexei Kudrin, challenged the dollar’s “absolute’’ preeminence as the global reserve currency. According to Kudrin, the US trade deficit should be a source of major concern and that the US currency had been unstable for the past years. Speaking on behalf of a country whose gold and foreign currency reserves totaled approximately $212 billion, Kudrin comments fuelled a downside bias for the greenback and helped propel the euro to an intraday high at 1.2360.

<B>Market expectations fanned out</B>

Dollar woes gained momentum after the G7 and the International Monetary Fund underscored the unsustainable US trade gap. Furthermore, the finance ministers of the world biggest economies made a formal call for China to let the yuan move more freely. In a communiqué, the G7 noted that the “global economic adjustment’’ should be a shared responsibility. According to analysts, this was the first time that the G7 came up with a new language that significantly implicated the foreign exchange market. Against the Mauritian rupee, the dollar was trading at MUR 30.989 same as last week.

The yen was buoyed against the US dollar during the past week after the G7 cranked up pressures on China to allow the Chinese Yuan to appreciate. In a report, Chinese central bank governor Zhou Xiaochuan stated that the yuan would probably rise more swiftly but gradualism was still the guiding philosophy. As China was taking some baby steps towards a free currency float, traders started to build up long yen positions. The Japanese yen was considered to be a proxy for the Chinese currency due to close trading ties between Japan and China.

Yesterday, the Japanese currency was offered at MUR 27.33 compared to MUR 26.55 last Tuesday.

The Sterling ended the week on a steady foot against both the euro and the dollar due to the robustness of the data that were released. UK retail sales rose by a monthly 0.7 percent in March, doubling up economists’ forecasts. On the other hand, mortgage-lending growth jumped to its highest level in nearly two years. These upbeat data fanned out market expectations that the Bank of England would be cutting UK’s interest rates anytime soon. Also, the pound benefited from the broad weakness of the US dollar as it tracked down the movement in the euro-dollar.

Yesterday, the pound was trading at MUR 55.84 as against MUR 54.36 last Tuesday.

<B>Major data/events this week:</B>

<B>Wednesday 26 April </B> US Mortgage Indx, Durable GB GDP

<B>Thursday 27 April</B> US Jobless Clms

<B>Friday 28 April </B> US GDP, Core Pce EZ Consumer sentiment JP BoJ decision

<B>Monday 01 April </B> US Core Pce

<B>Tuesday 02 April </B> US Redbook

<B>Contributed by HSBC

Vassan Caleemootoo</B>