The dollar had quite a bruising week and seemed to be well on track to have another consecutive week of decline against major currencies. Two severe blows ? the interest rates in the euro zone rose to 2.5 percent and mounting speculation that the Bank of Japan would shift policy hurt the greenback.

The US currency started the week within confined ranges, despite intraday choppiness. This helped implied volatility; a measure of anticipated trading range of a currency over a given period of time, to multi-year lows. The dollar remained flat, rowing thru tame inflation measure and the failure of the euro to break key technical levels.

The dollar succumbed across the board on Thursday after the European Central Bank raised the eurozone interest rates. This triggered a broad rally in the euro and added fuel to the fire by upping its 2007 inflation forecasts. Jean-ClaudeTrichet kept most of his options open and indicated that the ECB would ensure credibility of the ECB monetary policy and to anchor inflation expectations. He also stated that interest rates would be a stimulus for the world?s second largest economic bloc. The euro rose to its highest level against the dollar in almost a month. Technically, the euro found great support from the 14-day moving average at $1.1910. As Jean-ClaudeTrichet took the hawkish stance on rates, euro zone 10-year bond yields rose to one-year highs, dragging benchmark US treasury yields to four-month highs.

At the same time US blue chip stock sagged as investors punished bank stocks for rising borrowing costs.

Negative impact of rising geopolitical tension

However, many analysts were quite split over the greenback outlook. Dollar bulls still believed in the US fundamentals and eventually saw dollar-buying opportunities. On the other hand, dollar bears were cautious about placing large bets on the dollar ahead of the meeting of the UN?s atomic watchdog to discuss Iran?s nuclear ambitions. Rising geopolitical tension between Teheran and the Western world might negatively impact oil price, which would pressure the dollar downward, said market talks. In fact, the International Atomic Energy Agency might construct a case to the UN Security Council, prompting worries that the West might question whether Teheran was on its way to build atomic bombs.

Against the Mauritian rupee, the dollar was trading at MUR 30.888 same as a week earlier.

The Sterling started the week on a firm bias against the dollar, shrugging off soft UK retail sector and property market data. According to many analysts, order-driven month-end demand and talks of cross-border corporate takeover lent some support to the pound. Slowly but surely, the pound gathered momentum and stood at a 3-week high against the dollar, boosted by upbeat mortgage data. But signs of exhaustion started to plague the UK?s currency. The manufacturing data came out weak, highlighting sectors of manufacturing as being the weakest link for the UK?s economy. However, the biggest fall of the week was noted after the ECB increased interest rates in the eurozone. Towards the end of the week, the Sterling clawed back some ground, as news broke out that German firm Linde agreed to buy Britain?s BOC Group for a cash amount of 8.2 billion pounds. On the other hand, Vodafone Group was in talks to sell a controlling stake in its struggling Japanese unit to Softbank Corp in a deal worth over 1 trillion-yen.

Against the MUR, the sterling was exchanging at 54.20 compared to 54.00 last week.

The yen was back on the table for market traders. Speculations were stirred when a high Chinese foreign exchange official commented that Beijing could soon let the yuan appreciate more in the future. This comment prompted investors to buy the yen, which could be a proxy for the yuan. In addition, expectations that the Bank of Japan would dump its ultra-easy monetary policy were equally seen as supportive for the yen.

The yen was sold at MUR 26.47 as compared to MUR 26.70 last week.

Major data/events this week:

■ Wednesday 08 March
US Mortgage Indx

■ Thursday 09 March US jobless claims GB Trade, BoE rates

■ Friday 10 March

■ Monday 13 March

■ Tuesday 14 March JP BoJ minutes.

Contributed by HSBC Vassan CALEEMOOTOO