A series of blasts ripped through the London transport system last Thursday during the morning rush hour as leaders of the Group of Eight major industrialized nations were meeting in Scotland. The immediate aftermath of the explosions set the market at a risk-reduction, flight-to-quality mode causing both the US dollar and the Sterling to weaken. This situation propelled the safe-haven buying Swiss franc to a high of 1.2829 against the US dollar. The currency market cooled down following the burst of market activities during the explosions as the market refocused upon last Friday’s US job data to find fresh clues on the path of the currency market.

On that Friday the dollar pared gains against major currencies as the market was pretty nervous in the wake of the London deadly blasts, despite a fair monthly US job report. In fact, the US non-farm payrolls for June rose to 146,000 – weaker than the 188,500 jobs expected by economists. The unemployment rate was 5.0 percent, compared to an expected 5.1 percent by economists. However, the upward revisions of the April and May jobs numbers to 292,000 and 104,000 boosted the two-month count by 44,000. Despite the solid approval of the EU referendum by Luxemburg, the euro failed to break resistance against the dollar as expectation grew that the Federal Reserve would keep US interest rates on the rise.

The US currency took a hit on Monday across the board as the market moved prudently ahead of the US May trade data this week, which could underscore the long-term factors threatening to hurt the US currency. The gaping US deficit was a key factor in the descent of the greenback into a three-year decline until the end of 2004; however, the US Federal Reserve had steadily lifted the benchmark US federal funds funds rate to 3.25 and was expected to tighten it further.Against the Mauritian rupee, the dollar was trading at MUR 29.66 same as last week

Sterling sank to a fresh 19-month low against the dollar and lost half a percent versus the euro on Thursday after the terrorists attacks in London killing. At 14.30, London time on Thursday, the pound was traded at $1.7446 recovering from a fresh new low this year of $1.7403. Trading was jittery early this week as the market was nervous about the economic implication of Thursday fatal attacks. Furthermore, the market was wary about the Sterling as there was little to support the currency in the near term given the expectation of a rate cut in the UK interest rate in the future.

Yesterday, the pound was trading at MUR 52.43 as against MUR 52.31 last TuesdayThe yen teetered above fresh new lows against the dollar this year as oil prices surged to record highs. Traders sold yen as the price of oil peaked above $60 per barrel, on the view that Japan’s heavy reliance on imported crude could snuff out recent signs that the world’s second largest economy was gaining steam. Yesterday, the Japanese currency was offered at MUR 26.76 as compared to previous Tuesday’s 26.71.

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

● <B>Wednesday 13 Jul</B>

US Mortgage Indx, Int’l trade, Fed budget

● <B>Thursday 14 Jul</B>

US jobless Claims, CPI, Retail Sales

● <B>Friday 15 Jul</B>

US Michigan Prelim

● <B> Monday 18 Jul</B>

US capital net flows

● <B>Tuesday 19 Jul</B>

US redbook

<B>Contribution by HSBC</B>