During the US trading sessions of last week, a string of robust data set fire to a dormant dollar and sent the latter to a flying start against major currencies. Above consensus April job creation, upbeat retail sales data, a much narrower-than-expected US trade deficit tempered spooked investors and fuelled waves of dollar buying in the recent sessions. The US labour market came with a blockbuster report signaling that 278,000 new jobs were created in April; hence, beating economists’ expectations of 170,000 new jobs. The US retail sales data surged to 1.4 percent in April as opposed to a meager 0.4 percent increase in March. However, the biggest surprise shook the market when the US trade deficit contracted to $ 54.99 billion in March from a revised $60.57 billion in February—underscoring economists’ median forecast for $ 60.57 shortfall. Exports climbed 1.5 percent while imports eased down to 2.5 percent. These indicators stroked the market’s increasingly bullish sentiment towards the dollar and the US economy.

Widening deficits shaved GDP growth and exacerbated financial needs while narrower trade deficits suggested consumer spending. According to analysts, the robust sales following a strong jobs report put to rest worries about a possible ‘soft patch’ in the US economy and reassured the market that US interest rates would continue its upward path, helping the greenback. Against the Mauritian rupee, the US dollar was trading at MUR 29.3813 as compared to MUR 29.3510 last week.

The Japanese yen went through a roller-coaster ride last week, bolstered mainly by a buoyant dollar and increasing speculation that China would release the yuan’s peg to the dollar.

Buying the yen was a popular proxy bet on the near-term move by China to make its currency regime more flexible, and investors had snapped up the Japanese currency since Chinese officials, in a flurry of comments, stated that China was better prepared to lose the peg. The market reacted little to comments from the Japanese Finance Minister Sadakasu Tanigaki, who stated that authorities would intervene in the event the market turned volatile due to intensified speculation over China’s currency policy. However, some market analysts believed that intervention by Japanese authorities was unlikely, as the yen might not post big gains if China relaxed the yuan peg to the dollar. Furthermore, the yen lost its footing as foreigners were net sellers of Japanese stocks for four consecutive weeks after a 23 –week buying streak. The yen got a breath of fresh air on Friday and Monday from the repatriation of quarterly coupon payments on US treasuries.

Yesterday, the Japanese currency was offered at MUR 27.57 compared to MUR 27.91 for the previous Tuesday. The sterling suffered a lot in the past week hitting its lowest level in six months against the US currency, pressured by bearish UK house price survey, broad dollar strength, and bond related selling. In the wake of poor economic data, analysts began predicting that the next move would be a cut in the UK’s rate of interest.

Yesterday, the pound was trading at MUR 54.04 against MUR 55.37 last Tuesday.

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

■ Wednesday 17 May US Ind Prod

■ Thursday 18 Mar US Mortgage Indx, CPI

■ Friday 19 Apr GBP Retail sales, Ez Ind Prod, US jobless Claims, Phil Fed

■ Monday 23 Apr JP All industry

■ Tuesday 24 Apr US Redbook

<B>Contribution by HSBC</B>