The greenback slipped across the board after a report pointed out that the US inflation was well contained. This sparked concerns amongst market players that the Federal Reserve Bank might go ahead and cut interest rates later this year. The euro propelled higher especially when expectations ran rampat that interest rates in the euro zone would go up as early as next month.

The poor dollar started the week limping after data showed that the US attracted only $67.6 billion of long-term capital inflows for March compared to economists’ forecast. A dissection of inflows and outflows showed that US investors were increasingly purchasing foreign denominated assets, worsening the bulging US current account deficit.

Towards the middle of the week, the dollar revival vaulted to a new level. Unexpected strong growth in the US housing and industrial output put the greenback in a position to claw back some gains. In addition, a strong reading from the Philadelphia Federal Reserve’s business activity index for May showed a sharp rise in US business activity, supporting the view that the FED might look to adjourn cutting interest rates too soon. Out of the blue, the greenback was feeling good as it rested within confined boundaries by the Goldilocks scenario. Usually a Goldilocks economy would be neither too hot to generate inflation nor too cold to experience a hard landing into recession. However, many analysts believed that the US dollar revamp was only momentarily and was triggered by a wave of automatic sell orders for the euro by big sellers. Against the Mauritian rupee, the dollar was trading at MUR 31.994 yesterday same as a week earlier.

Sterling slipped away as batches of economic data tempered market expectations on how much interest rates in the UK would rise. Consumer prices rose 0.3 percent in April pushing the year to date average to 2.8 percent. Furthermore, solid data in the quarterly Bank of England inflation report appeared to support investors’ expectations that interest rates might be heading higher; however, market players shrugged off the report for its lack of lustre.

Investors demanded a more bullish report to add on to their already overstretched positions. After the UK household saving ratio fell at historical lows and the impact of past monetary policies were seen to reach cruising speed, analysts deducted that consumer spending would ease in the coming quarters. However, Sterling bulls got some relief from the rise of the sales deflator, a measure of price pressures in shopping malls, which shot to its highest since February 1999. Against the Mauritian rupee, the Sterling was trading at MUR 63.06 yesterday as compared to MUR 63.35 a week earlier.

Yen suffering continued despite a brief respite from Japanese first-quarter growth data that approximate forecast, fuelling expectation that the Bank of Japan would be on tract to hike up interest rates later this year. Japan gross domestic product rose to an annualized 2.4 percent in the first quarter, just below target of 2.7 percent. But yield- hungry investors, despite expectation that the BOJ would raise interest rates, were still selling the yen to fund the purchases of higher-yielding currencies and assets in carry trades, especially as global stock market were buoyant and volatility subdued.

Data showed that Japanese investment trust holdings of foreign assets jumped $14.8 billion in April, the biggest one-month increase since 1989. Against the Mauritian rupee, the yen was trading at MUR 26.34 as compared to 26.57 same as a week earlier.

<B>Vassan CALEEMOOTOO</B> <I>Contributed by HSBC</I>