GEOPOLITICAL developments largely dominated the market last week. The build-up of incidents after last week?s Madrid bombings triggered a break higher in the Swissie and gold, whilst the euro also followed suit. News police had delayed Eurostar service after finding a package on the tracks and that a man had been arrested under the UK Terrorism Act near Dover helped provide additional support to safe-haven currencies.

However, reports soon surfaced that Pakistani forces were battling Al Qaeda forces and could be close to capturing second in command, Al Zawahari. The news took USD/ CHF back into its recent trading range, whilst it also helped limit the rally in gold. A series of assassination attempts also added to the churning including the wounding of both the Taiwanese President and Vice President one day prior to the Presidential elections and of the Mexican Governor of Oaxaca. The dollar in fact rose on Friday amidst post-election confusion in Taiwan, following the re-election of President Chen Shui-Bian by a very tight margin.

Earlier, the FOMC maintained interest rates at 1.0%, and said growth and inflation risks were balanced. However, the Committee also said that although job losses have slowed, new hiring has lagged. Minutes from the FOMC?s Jan 28th meeting replaced the phrase ?considerable period? with the word ?patient?, showing the Fed could wail of more freedom to raise interest rates at some period. The FOMC members acknowledged there were risks in maintaining an overly accommodative policy stance.

Against the Mauritian rupee, the common currency was trading at MUR 32.92 as compared with MUR 32.32 a week earlier.

The dollar fell sharply against the yen over the week as Japanese officials became more aggressive in letting the markets know that the period of massive intervention could be ending including comments by Finance Minister Tanigaki before Parliament. USD/JPY fell 3.5% during the week, the largest one-week drop in over three years. Yet US Treasuries did not follow suit. Some had expected Treasury prices to fall on fears of reduced Bank of Japan flows into the market. Japan reported spending JPY 10.5 trillion on intervention during January and February and the market suspects that a similar pattern was repeated up until March 8th when USD/JPY reached 112.00.

Yesterday, the Japanese currency was offered at MUR 25.04 as compared to MUR 23.99 on last Tuesday.

Sterling kept a bullish stance last week, bolstered by speculation British interest rates might be hiked in the near future. Unemployment rate dropped to 4.8 pct, the lowest since records began in 1984. The jobless rate is also one of the lowest in the industrial world, at a time when the global economy is regressing. Monetary Policy Committee member Paul Tucker said during the week that interest rates will probably have to continue rising gradually. UK rates stand actually at 4 pct, compared to US rates of 1 pct and eurozone rates of 2 per cent.

Yesterday, the pound was trading at MUR 49.30 as against MUR 47.56 on last Tuesday.

Major data/events this week:

Wednesday 24 March JP trade balance, US durable goods

Tuesday 30 March GB Gfk survey, US consumer confidence

Contribution by HSBC